Wise choice of bread
To share is to care – at least that’s what is in our minds. And for the most part, this is true.
However, if you’re thinking about taking the final step in sharing information – adding someone to your home document – it’s a good idea to think about the implications. It is important to understand that when you add someone to your document, you are giving them the same “set of rights” – control, use, ownership, exclusion, and control – that you have as the owner of the property. Before adding your loved one to your document, it’s important to speak with a real estate attorney and your mortgage lender to make sure you understand your rights and to determine if this step is right for you.
Here are five things you should consider before adding someone to your case.
1. You can’t take it back
When you add someone to a document, all or part of your property goes to that person. Once that’s done, you won’t be able to get it back unless the person you added agrees to be removed from the document. He or she can take out a loan for the property, demolish it, or even sell his or her share of the property. And in some cases there is nothing you can do about it.
Even if you transfer only a portion of your ownership interest, that person will have complete control over their ownership interest and can force the sale of the property. If you want to refinance or sell your home, you must get permission from the person you added. This can lead to lengthy and costly litigation that can block the property for years to come. Make sure you fully understand the meaning and implications before you sign the dotted line.
2. You need a lender’s permission.
The law does not prohibit adding people to a house document with an outstanding mortgage. Mortgage lenders are familiar and often work with document changes and translation. Most lenders include a “clause of sale” loan, which gives them the ability to claim a loan if the deed is transferred or the house is sold. When you “transfer” your home to someone, you are effectively transferring partial ownership, which may trigger a “due sale” clause.
It is imperative that you understand the rules that govern your particular situation. And you must get permission from your mortgage lender. before adding someone to the case. (See also: Why You Should Call Your Mortgage Lender Every Year)
3. Exposure to additional responsibility
Let’s say you decide to add your brother to a case. If he doesn’t pay taxes and is subject to a tax lien, has trouble with creditors, or is going through an embarrassing divorce, the IRS, his creditors, or his ex-spouse can make claims on your home, or at least part of it. In this situation, the indebted entity may seize your property and try to force the sale to collect the debt, or tie the property up and stop you from selling.
Adding someone to your home document can also result in tax liabilities if the residence is sold in the future.
4. Tax on IRS gifts may apply.
When you add someone to your document, the IRS treats it as a gift. This person is subject to the IRS gift rules. As of 2018, the allowed limit on IRS gifts is $ 15,000 per year per person. Gifts in excess of this amount are subject to gift tax.
An important takeaway here is that you should consult with a tax attorney or a Certified Public Accountant (CPA) before adding someone to your document to make sure you understand the implications and not face any surprises in the future. … Your good intentions can be costly if not followed up with due diligence. (See also: 4 Things to Know About Gift Tax)
5. It can be tricky.
There are so many hidden risks and pitfalls to add someone to the cause. Remember that you are becoming a co-owner, not an exclusive owner. This change may affect your eligibility to sell or refinance. And for older homeowners approaching retirement age, asset transfers can negatively impact Medicaid eligibility.
Another thing to consider is that adding someone to a case does not make them liable for duty. Unless the original loan agreement is changed, you are still solely responsible for the repayment and the other person has ownership.
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