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Hi There. Here is the scenario: My aunt recently passed away, leaving my uncle with a house that has been paid off for years now. My uncle wants to "sell" the house to his son, my cousin for much less than actual value to help my cousin out. What is the best way to do this? Use an atty or a realtor? Try to get a mortgage or have my uncle take out a second mortgage that my cousin would pay for and my uncle would quit claim the house over to my cousin? I don't know.
The house is likely valued at just a guess, 110k-125k, maybe 140k. My uncle will sell it to my cousin for 50k. My cousin did have a mortgage pre-approval awhile ago, so he contacted that bank and apparently the bank has been dragging its feet regarding approval for a loan. Don't know if the bank doesn't want to be bothered with such a small amount or what.
I thought that my uncle really only needed an atty to draw up papers and close the deal. Not really needing a realtor because he has a buyer.
My cousin has a decent job, been there for atleast 7 years I believe, and could afford the mortgage easily because of the low price.
What's the best way to handle this? Thanks.
Last edited by oldhousegirl; 11-01-2011 at 03:15 PM..
I would call a real estate attorney. It sounds like a fairly quick and easy transaction. I think your cousin should just get a mortgage and pay off his dad for the property.
Maybe try seller financing? If the house is owned free and clear, the father can hold the note on the house for the son and put it at a super low interest rate. Even if the purchase price is closer to the full market value for the property, because the interest rate is so low the son may actually be losing less money to interest over the life of the loan, thus making it cheaper overall in the long run. Also it's great because instead of losing interest to a bank and having to qualify (and having to pay PMI if you don't have enough down for a conventional loan), all it takes is the father signing the papers. The interest goes to the father instead, and he may be able to pay less taxes with the installment payments.
It's one route but definitely check with a real estate attorney and tax guy to confirm this, but it's not a bad way to go.
Interest rates are really favorable enough, if the son can find someone to write a small mortgage loan, that is the way to go, IMO.
Dad should NOT borrow and let the son pay after quit claiming. Loans still come with "Due on Sale" provisions, and that much equity may make accelerating the loan attractive.
What you need isn't necessarily a real estate attorney so much as a tax attorney. There are significant tax issues implicated in a transaction like this, the upshot being the uncle could be liable for a huge gift tax bill if he doesn't do this right.
Drover beat me to it -- this is NOT an "arm's length sale" so by definition it will NOT be able to be used for valuation purposes to determine tax liabilities.
You probably DO NOT NEED an attorney for the title transfer aspects at all in most states -- you just record a quit claim deed, have the title recorded, record whatever lien / mortgage your uncle wants to collect from your cousin and SHAZAM the place has "changed hands".
In many places there are TITLE TRANSFER TAXES that need to be settles and there are implications for the Federal Income Tax because of "gift" that happens here. Technically it may be better to structure this as an installment sale and that would result in different tax treatment, in such a case (and depending on age / health of uncle...) there may be some reasons to avoid transferring the title...
There are books on estate planning that are helpful. I assume your uncle only has one son as heir. A good starting point is Gerald Condon's book: The Right Way and Wrong Way of Leaving Money to Your Children and Others. A little ore specialized (but extremely detailed...) is the book by David Fry with Rose & Stuart Hollander: Saving the Family Cottage: A guide to succession planning (yes, it works even for non-vacation homes...) Debra Jacobs has a very thorough book: Estate Planning Smarts -- A practical , user friendly, action oriented guide.
Thanks Mike, Drover and Chet. Drover, hadn't thought about the personal tax implications . Chet: So, the personal taxes would most likely be based on the title transfer tax and not the "gifted" amount, i.e. the huge gift tax bill? Am I understanding correctly?
How about this scenarios: My uncle quit claiming the house to my cousin, with my cousin getting a equity/second mortgage on the paid off house rather than my uncle doing it - that was suggested by another family member. They are definitely going to talk to an atty though, I appreciate the responses.
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. Chet: So, the personal taxes would most likely be based on the title transfer tax and not the "gifted" amount, i.e. the huge gift tax bill? Am I understanding correctly?
