I highly encourage you to bring your scenario to a real estate attorney. There’s two of them on this blog that you can contact: Russ or Craig.

There are alot of title issues I see that you’re not even covering, there’s the issue of the MIL’s obligation to the bank, as Rhonda pointed out.

If you’re not sure if this is “legal” why not get a legal opinion? My first thought when I read your scenario was, “who is talking them into this, and why?”

I mean, don’t you even want to have the home appraised and inspected? What if the family member is selling you a home that’s going to need a lot of work and they’re not giving you the full picture? Who’s going to prepare the final documents and get them recorded?

From my 25 years in the business, when dealing with family members, it is absolutely imperative that everything is dealt with on the up-and-up, because this usually translates into family peace down the road.

You need a disinterested, arm’s length, third party to give you a reality check.

Family can gift real estate and there may be excise tax due. Lenders may have requirements with how long a person has been on title before consumating a loan. “Taking over payments” may be an issue with the underlying lender.

You need to speak to a real estate attorney. If you’re going to do this, do it right. The agreement (deed of trust) with the lender is with certain parties who signed the deed of trust. Cutting corners on fees upfront could really cost you (and your family) in the long run.

MIL & Brother are on Title.
MIL refinances 80% of home value pays off brother for his 50% takes him off title, adds me and the wife with her on title. MIL takes remaining proceeds and we give mother in law our down payment 10%. The wife and I take over the refi payments and have a small side loan for the remaining purchase price 10%.
80% refi+10% down+10% loan to MIL = purchase price.
In doing this we avoid many fees and it may work out pretty well, but is it legal?

Best case scenario is MIL carries some $$ say 20% of her portion and we pay her, next thing you know we lock in a conforming. The home is in Magnolia and to be honest I see a few sitting around with asking prices that are a bit high.

Maybe having to walk on eggshells just to get that loan is the market’s way of telling you you’re spending more than you probably should. There are a lot of people in places like California, Florida, and Arizona who probably wish they hadn’t qualified for their loans.