Sell home to family for what I owe.. (loan, debt, short sale)
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Hello. I found this site while looking for answers regarding my situation.
I bought my house over three years ago. While working I was able to pay my mortgage and actually save money at the same time. I have been unemployed for about six months and have tried getting a loan mod, but have been denied based on my debt to income ratio and being on unemployment.
My mother wants to take the money she gets from selling a home and use it to purchase my house off me for what I owe the banks. The amount I owe the banks is about 30k - 90k less then what market value would probably be. It depends what market value is on my house I guess. She was thinking about rolling the money she gets from the sale right into my home so she can avoid the large tax from it. I forget what the specific name of this transaction is called.
I then would pay her what I can to live in the house.
Now this is all wishful thinking ..
Do you know any issues I can have with the IRS?
Do you have anyone you can recommend that would have legal answers for me based on my question?
Sounds like a good plan to me. She'll do a tax sheltered 1031 exchange to buy the house and rent it to you. Win- win for both of you.
First, you should firm up all the details you can think of with your Mother.
1. Will you have the option to buy the house back at some point? Do you want to? Since there appears to be equity in the house- will you be part owner on the deed?
2. How much rent- you are very vague- ? How little will she tolerate if you have no income and for how long? Can she take a loss indefinitely or would she have to throw you out if you don't get another job soon?
3. Can you pay the utilities?
This is assuming you have a very good relationship with your Mother and you get along very well. Will you eventually inherit from her? She is on good financial footing?
I'm sure others will come up with other considerations.
If you feel confident about the results of these decisions, then go see your attorney to draw up the bill of sale with appropriate provisions.
I agree with Hollytree that it sounds like a 1031 tax exchange. It could be a win-win, but I think only your mom can be on the deed for that since it is her exchange.
I also agree that you need to do some number crunching and make sure that even with mom doing this for you, you can maintain the home and pay the bills.
...She was thinking about rolling the money she gets from the sale right into my home so she can avoid the large tax from it. ...
As suggested, a 1031 may be the way to go if your mom's home was an investment property. If it was her primary residence for 2 of last 5 years, then it's likely she will have no tax hit anyway.
Also, if you owe more than what she can buy it for, then sounds like a short sale may be involved.
I also want to add that depending on your location and how property taxes are figured in your state, your property taxes can increase without the mortgage deduction and/or homestead deduction. (If these are applicable in your area - in mine, they are and can reduce property taxes by hundreds to thousands.)
Me and my mother have a very good relationship when it comes to money. If something were to happen to my parents on paper I have control over everything. I know that doesn't sound like much, but I feel that she trust me more than my other siblings.
My parent are financially sound and can help in this manner.
She told me that on paper the house would be hers, but in the end when property is divided up between me and my siblings its 100% mine. We have talked about possibly selling it back to me, but I will worry about that when I get to that.
I trust my parents a lot. They have done so much to help me.
I do realize if I'm not on the deed I do lose the option of tax benefits and taking out a line of credit, but being able to keep this house is the only thing on my radar right now. I have too much money into it to walk away.
We figured out if she were to roll that money in and the remainder balance would be very well affordable for me. I would actually be able to cover her mortgage and taxes on unemployment.
So I guess we don't have to worry about the IRS coming after us for this round about way of keeping my house? She thinks that they would come after her when she does the 1031 tax exchange. I told her that as long as I sell my house for what I owe the bank no one should have a say who buys it and for how much.
What type of property is she selling? An investment? Then 1031 exchange.
A personal residence that she has lived in for 24 months and not taken the $250,000/$500,000 exemption before? straight up purchase.
So I guess we don't have to worry about the IRS coming after us for this round about way of keeping my house? She thinks that they would come after her when she does the 1031 tax exchange. I told her that as long as I sell my house for what I owe the bank no one should have a say who buys it and for how much.
On second thought, don't listen to us.
Find a local qualified accountant who's experienced with 1031 exchanges who give you the skinny on your particular situation.
There are many rules (and that's putting it lightly) for 1031 exchanges - don't listen to nameless, faceless people on the internet ... hell, I could be a 450 lbs hairy guy who works at Taco Bell, lives in my parent's basement and dresses as Spock in my downtime. Don't listen to us - meet with a qualified financial advisor who you (and your parents) can meet with and lay out the game plan on the purchase of your home.
Find a local qualified accountant who's experienced with 1031 exchanges who give you the skinny on your particular situation.
There are many rules (and that's putting it lightly) for 1031 exchanges - don't listen to nameless, faceless people on the internet ... hell, I could be a 450 lbs hairy guy who works at Taco Bell, lives in my parent's basement and dresses as Spock in my downtime. Don't listen to us - meet with a qualified financial advisor who you (and your parents) can meet with and lay out the game plan on the purchase of your home.
Live long and prosper.
Your right I will, but the funny thing is she talked to her financial lawyer and he gave her some bs about not spoiling the kids and stuff. So who is he.....He didn't even give her a straight answer about the laws. I told her we need to talk to some more people. Hopefully a qualified one..
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