Wise bread selection
Sharing is caring – at least that’s what we were drummed into. And for the most part, it’s true.
However, if you are thinking of taking the ultimate step in sharing – adding someone to your house deed – it’s a good idea to consider the ramifications. It is important to understand that when you add someone to your deed, you are giving them the same “set of rights” – control, enjoyment, possession, exclusion, and disposal – that you have as the property owner. Before adding a loved one to your deed, it is important that you speak with a real estate attorney and your mortgage lender to make sure you understand your rights and to determine if this is the right step for you.
Here are five things to consider before adding someone to your deed.
1. You can’t take it back
If you add a person to the deed, all or part of your property will be transferred to that person. Once this is done, you cannot take it back unless the person you added agrees to be removed from the deed. He can mortgage, demolish or even sell their stake in the property. And in some cases, there is nothing you can do about it.
Even if you transfer only part of your stake in the property, that person will have full control over their stake and may possibly force a sale of the property. If you want to refinance or sell your home, you need to get permission from the person added. This can lead to time-consuming and costly litigation that can tie the property for years. Make sure you fully understand the implications and consequences before signing on the dotted line.
2. You need the lender’s permission
The law doesn’t prohibit adding individuals to a house deed with an outstanding mortgage. Mortgage lenders are familiar and often work with deed amendments and transfers. Most lenders have a loan “maturity clause” that allows them to redeem the loan if the deed is transferred or the home is sold. When you “transfer” your home to someone, you have effectively transferred partial ownership, which could activate the “due-for-sale” clause.
It is imperative that you understand the rules for your particular situation. And you should get permission from your mortgage lender before adding anyone to the deed. (See Also: Why You Should Call Your Mortgage Lender Every Year)
3. Danger from additional liability
Let’s say you decide to add your brother to the chart. If he’s not paying taxes and acquiring a tax lien, having trouble with creditors, or going through a nasty divorce, the IRS, his creditors, or his ex-spouse can claim your home, or at least his part. In this situation, the owed company may put a lien on your property and try to force a sale to collect the debt or bind the property and prevent you from selling.
Adding a person to the deed of housing can also result in income tax liability if the home is sold in the future.
4. IRS gift taxes may apply
If you add someone to your deed, the IRS will consider it a gift. That person is subject to the IRS rules regarding gifts. As of 2018, the IRS permitted gift limit is $ 15,000 per person per person. Gifts in excess of this amount are subject to gift tax.
The important note here is that you should make sure that you consult a tax attorney or Certified Public Accountant (CPA) before adding anyone to your deed to make sure you understand all of the implications and don’t run into any surprises later. Your good intentions can be costly if not accompanied by due diligence. (See Also: 4 Things You Need To Know About The Gift Tax)
5. It can get complicated
There are so many hidden risks and pitfalls in adding someone to action. Remember that you become a co-owner, not the sole owner. This change could affect your eligibility to sell or refinance. And for older retired homeowners, asset transfers can adversely affect Medicaid eligibility.
Another thing to consider is that adding a person to the charter does not hold them responsible for the debt. Unless the original loan agreement is changed, you remain solely responsible for the repayment and the other person has property rights.
Do you like this article? Pin it!