Can I add binding conditions to the closing statements for 3rd party financiers?

**AllBegins** · 12-22-2010, 03:50 PM

I'll try to make this as clear as I can: can a closing attorney include a clause in the closing statement that imposes a condition on the purchase imposed by a 3rd party that provides financial assistance to the buyer?

Example: a friend, 'A', helps another, 'B', make a purchase by providing a loan of $xx,xxx amount. Can 'A' create a condition that says the following? "There is no necessity to pay back the loan. However, the closing is only valid if 'B' lives in the house permanently. If he sells, gets rid of, or changes ownership of the house in any way within x years, the funds in total of $xx,xxx should be returned back to me, 'A'."

Hopefully that example clears up the question. Is that example possible to include in a closing statement?

I appreciate it!

**Greg** · 12-23-2010, 06:35 AM

If this clause is included in the contract it would only be enforceable by you if you sued for the return of your funds.

If it is included in the deed then the buyer might not be able to refinance the loan at a later time or even get the 1st mortgage if your loan is going to be a second mortgage.

Maybe a mortgage instrument attached to the deed would accomplish want you want.

You really need to talk to an attorney familiar with the laws where the house is located.

I think you are gong to have a hard time making it illegal for someone to move and if you do it you might end up forcing them to default on the loan if they have to move.

There is no clean way to lend money to family/friends.

**AllBegins** · 12-23-2010, 06:49 AM

Greg, thank you very much for your reply!

I think you are gong to have a hard time making it illegal for someone to move and if you do it you might end up forcing them to default on the loan if they have to move.

The thing is, just like a loan from the bank, the condition would create a legal status that the money would need to be paid back. It's not making it illegal to move from the property, it's just creating the "liability" (i.e. the house doesn't completely belong to person 'B', but also the lender). If the person does move or change ownership, then the loan will need to be paid back, possibly by forcing the person to sell the home.

Does that make sense? Can such a 3rd party liability be created, where the condition states that the loan only applies for person 'B' living there, or else it must be paid back?

And I will certainly talk to a legal attorney before going through with it, of course, thank for the advice and the help!

**Greg** · 12-24-2010, 06:38 AM

you can add a 'due on sale' clause that will force them to pay off the loan when they sell.

I don't know about the moving part. What if they have to move because of a job but the market won't support the sale vs the debt on the property. Your idea would force them to sell at a loss or walk away from the debt in which case the first loan would foreclose and you will be left with nothing and their credit will be shot.

**lvagent** · 12-26-2010, 02:26 PM

I would say consult with your local laws, but it probably can be done, it just has to be done through title, if anything you may want to talk to their attorneys for correct wording. You can record the restriction, and any title compnay that does a title search can find it.