Legal Question in Real Estate Law in California

Re: Real Estate: Refinancing a Mortgage

Here are some random thoughts:

1. Has your brother really tried to refinance, especially with his current lender? A current lender is often more willing to do a refi because they don't increase their exposure to default, they probably marginally reduce it because they still have the same $X of low-score loan on the books as before, but the borrower is less likely to default if the rate is lower.

2. Remember that rates on owner-occupied homes are lower than non-owner-occupied; you won't get the best rate even with your good credit.

3. To do this, I'm assuming he would sell the house to you at fair market value, and you would use the proceeds of your new first to pay off his existing loan. If the house is worth approximately the amount of the loan, no cash would have to change hands, and tax effects would be minimal.

4. You would need a lease specifying a rental that covered the payments you'd be making, which might include property taxes if there were an impound account.

5. The biggest problem might be reversing the ownership - selling it back to him - in the future.

A sale and purchase would require both of you not only to want to do it (or an ironclad contract) and to have the ability to carry it out.

6. Even if there are no adverse tax consequences of doing today's part of the deal, the sale-back could, nay likely would, impact someone's taxes.

7. While you are tied up owning brother's house, it would be more difficult to finance a house of your own, although no one can predict future availability or cost of credit for second homes.

8. If you do this, have a lawyer review the specifics, have a title company handle escrow, closing and documentation, and don't misrepresent to anyone what it going on.

9. Deals like this require good faith and personal integrity on the part of the principals, and even so can go awry for reasons that could not be predicted at the outset.

10. There may be ways to structure the deal that I didn't discuss in this answer.