I “Bought” a House but It Isn’t in My Name

Summary

Summary of "I 'Bought' a House but It Isn’t in My Name" – The Ramsey Show Highlights

Release Date: March 3, 2025

In this episode of The Ramsey Show Highlights, host Dave Ramsey and guest Rachel Cruze delve into a complex situation involving Timothy, a young couple navigating financial challenges while attempting to secure homeownership. The discussion unpacks the risks of informal real estate agreements, the importance of legal safeguards, and the pitfalls of mixing family with finances.

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1. Timothy’s Housing Situation and Financial Goals

[00:10] Timothy initiates the conversation by outlining his current financial journey. Married for a year, he and his wife are on baby step two, focusing on eliminating debt—specifically, tackling her student loans. Approximately three years prior, Timothy entered into an agreement to purchase a house from his aunt and uncle, who were entangled in tax problems preventing them from transferring the deed to him immediately. He currently owes them $60,000 and is contemplating whether to save this amount in a bank or invest after settling the student loans.

Notable Quote:

Timothy [00:10]: "We've got two years left until they can sign the house over to me, deed it over to me, and I will."

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2. Concerns Over the Informal Purchase Agreement

[01:01] Dave expresses alarm upon learning that Timothy believed he had purchased a house, only to discover the legal intricacies preventing the deed transfer. He questions the legitimacy of a "handshake agreement" in such a significant transaction.

Notable Quote:

Dave [01:13]: "What was the legal process for you to buy a house that couldn't even go into your name?"

[01:20] Timothy clarifies that while the agreement started with a handshake, there is documentation:

"We did write something out that we all signed."

Despite having a written agreement, Dave [01:25] remains uneasy, highlighting the risks of paying for a property without holding the deed:

"What if they don't get out of this mess and you've been paying on a property that you have no claim to?"

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3. Rachel Cruze’s Intervention and Legal Implications

Before the discussion can delve deeper, [01:38] Rachel interjects to commend Timothy for his honesty in labeling the arrangement as "really low rent," encouraging him with:

"Good for you for saying it like that."

As the conversation progresses, Rachel [02:46] raises a critical issue regarding the legality of Timothy’s arrangement:

"I think you may be complicit in tax fraud."

She underscores the potential legal ramifications, especially considering Timothy's aunt and uncle's restrictive agreement with the IRS, which prohibits them from generating extra income:

"If the government finds out they've been making side money on this deal and they take the house, you're going to be in a mess."

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4. The Risks of Mixing Family with Financial Agreements

Rachel strongly advises Timothy to reconsider his arrangement due to the precarious nature of dealing with family members who are already facing financial instability. She recommends:

• Ending the informal agreement: "I would take out a mortgage and end this relationship, the business relationship with my aunt and uncle."
• Avoiding future complications: "The best predictor of future behavior is past behavior."

Dave [04:01] supports Rachel's stance, expressing his discomfort with the situation:

"Situation gives me the heebie jeebies."

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5. Financial Planning and Recommendations

Despite the potential pitfalls, Timothy shares a positive outlook on his financial management:

"I think we save about 5,000. We put pay about 5,000 a month now towards student loans."

Dave outlines a clear path forward for Timothy, emphasizing debt elimination and emergency fund establishment before moving into investment:

"One year from now you guys are completely debt free with an emergency fund. That puts us in baby step four when we can begin investing."

He advises:

• Investing 15% while making rent.
• Saving additional funds to reduce the loan balance once transitioning to homeownership.

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6. The Ethical and Practical Conclusion

Rachel concludes by emphasizing the ethical concerns and practical dangers of the current arrangement:

"You're dancing with the devil. And I would want to end that as soon as possible."

She advises Timothy to prioritize financial security over familial obligations by:

• Taking a conventional mortgage.
• Severing the shaky financial ties with his aunt and uncle.

Dave echoes the sentiment, reinforcing the importance of legitimate and secure financial dealings:

"Letting go of their house for less than half of market value."

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Key Takeaways:

• Legal Safeguards Are Crucial: Informal agreements, especially those involving significant assets like real estate, can lead to unforeseen complications and potential losses.
• Avoid Mixing Family and Finances: Financial transactions with family members can strain relationships and introduce additional risks, particularly if the other party is experiencing financial instability.
• Prioritize Debt Elimination and Emergency Funds: Before investing or making large financial commitments, ensure that debts are managed and emergency savings are in place.
• Seek Professional Advice: Consulting with financial advisors or legal professionals can provide clarity and prevent costly mistakes in complex financial situations.

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This episode serves as a cautionary tale about the importance of formal agreements in real estate transactions, the dangers of informal family financial arrangements, and the necessity of adhering to sound financial principles to safeguard one's future.

Transcript

[Host]

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[Timothy]

Wife, been married for a year now. We're on baby step two. We're tackling her student loans. And then about three years ago, I bought a house from my aunt and uncle, and they were in some tax problems. They couldn't sign the house over to me. Oh, no, I know, but. So we've got two years left until they can sign the house over to me, deed it over to me, and I will. Right now, currently, I still owe them 60,000, and I'm just curious if. If I should sock that money away after I'm done paying student loans off and then just keep it in a bank. And then that way two years from now I can just, you know, deals done, I don't have to take a mortgage out. Or should I go into investing after we pay off student loans?

[Dave]

Oh, boy. I'm still. I'm still stuck on the fact that you didn't buy a house. You thought you bought a house. What was the legal process for you to buy a house that couldn't even go into your name?

[Timothy]

Well, it's a handshake agreement. Yeah, pretty much.

[Dave]

Oh, my goodness. Is there anything in writing?

[Timothy]

Yeah, we do have. We did. We did write something out that we all signed.

[Dave]

This whole thing just worries me. What if they don't get out of this mess and you've been paying on a property that you have no claim to?

[Timothy]

So the way I justify it to myself is.

[Rachel]

Hey, can I just say right now. Hold on, before you even speak.

[Timothy]

Really low rent.

[Rachel]

Good for you. High five to you for saying it like that. The. The story I'm telling myself is this. So I. At least we're operating in reality. Good on you. Okay, so what were you saying?

[Dave]

So just know that there might be a scenario where you go, hey, at least we had cheap rent while we stayed here. But it's not.

[Timothy]

And that's what I'll have to tell myself if something bad happens.

[Rachel]

All right, if. Hey, your. Your. Your glasses are not rose colored. So fair enough. So in two years, you make the last payment and you own this thing outright.

[Timothy]

No. So in two years, that. So they had to go to court with the irs. The IRS said, fine, we're going to forgive everything. You cannot make any extra money for five years. So three years. And this was three years ago. So they had this house. I said, okay, well, I need a house. We came, we agreed on a price, and I gave them some money down and then I pay them a monthly payment. And at that five year mark, the agreement is either I'll take out a mortgage to finish paying what I owe, or I'll have the money or whatever it takes and then they can beat it over to me.

[Dave]

I thought they couldn't get extra money. Isn't this down payment and you paying them rent considered extra money?

[Rachel]

Breaking the law, Breaking the cash money.

[Dave]

Oh, under the table, sure. Oh, that makes it George. Okay. Hey, it's just a national radio show. What do I know? Okay, so what is your question, Timothy?

[Timothy]

If. If I should sock what I owe them away into a savings account so when the day comes that they can deed the house to me, I could just pay them off. Or should I be investing and then take out a mortgage?

[Rachel]

You're talking about not paying them anymore.

[Timothy]

No, I would still make the monthly payment, but just put extra away every month.

[Dave]

But you still. How much do you have left on the student loans? When are you guys going to be completely debt free?

[Timothy]

About seven months.

[Dave]

And then how much longer to get a fully funded emergency fund?

[Timothy]

That would take about another three to four months.

[Dave]

Okay, so let's call it a year. One year from now you guys are completely debt free with an emergency fund. That puts us in baby step four when we can begin investing. I would begin investing 15% while making rent. Any money beyond that you can sock away to try to lower the loan that you'll have when you do take this house over. Okay, but I would just take a small loan out. You guys are going to knock it out quick and so I'm not concerned about that. But I wouldn't hang on to the student loans and pile up money to make this transaction happen.

[Timothy]

Okay, I could have all of the money in about 25 months. That includes student loans and the house. All in 25 months.

[Dave]

So you're saying you could get out of debt, get the emergency fund and save up the 60k by the time this transaction is ready?

[Timothy]

Yeah, I think so. Yeah, we save about 5,000. Well, we put pay about 5,000amonth now towards student loans.

[Dave]

Okay, well, once you free up the payment, that'll help even more. So I like this plan. I would have a goal to go, hey, by the time they're ready to make this deal happen, we have the money to buy it from them. Is this. Are you buying it at a deal or is this market value based on all the rent you paid?

[Timothy]

So we agreed at 105. I had a realtor out A few months ago and they put it at.

[Dave]

248 is what it's actually worth. And the money you put in with the rent down payment plus the 60 will be 105.

[Timothy]

Yes, sir.

[Rachel]

Okay, so two things here. I have to say this. I think you may be complicit in tax fraud. So I have to just say don't do that. But you're doing it anyway. I just feel compelled to tell you, like if this whole ship goes down or the government finds out they've been making side money on. On this deal and they take the house, you're going to be in a mess. Or if they know anyway. So that's number one. Number two, I hear a secondary question. Should you just let them continue to be your bank after this? God no. The second they can take. The second you can. I would take out a mortgage and end this relationship, the business relationship with my aunt and uncle.

[Timothy]

Okay.

[Rachel]

And then deal with a bank because it's already so sketched. And again, I don't want to talk bad about people who aren't in the room. Right. But you've got a couple who was so bad off they had to enter into agreement with. They're so bad with their finances and that they had to enter into an agreement with the US government and the government said you can't make any extra money and then they're doing something shady under the table with their nephew and.

[Dave]

Letting go of their house for less than half of market value.

[Rachel]

The, the. The best predictor of future behavior is past behavior. And so I've got a couple here who's not good with money, who kind of does things under the table. If they don't sit down the month before you clear this and say, hey, the house is worth 240 now we're going to up the cost of this thing, I would be stunned. No, I, I have no problem being wrong. But my goodness, man, you are dancing with the devil. And I would want to end that as soon as possible. Let to being aunt and uncle as soon as humanly possible. That's. Yeah.

[Dave]

Situation gives me the heebie jeebies.

[Host]

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