Q: I recently got into contract to buy a foreclosed home. I put $35,000 down, and the closing is in a couple of days. The first day I hired my title attorney I mentioned to her that I wanted my mother to be on the deed in order to get the taxes reduced. Now, the lawyer is telling me that I have to wait until after the closing, do a new title search under my Mom’s name, and pay the attorney again to include my Mom on the deed. I feel like it’s too late to stop everything now — what did I do wrong?
A: It used to be the case that you couldn’t put a co-owner who was not also a co-borrower on title during the course of a purchase transaction. As an outgrowth of the foreclosure crisis, however, most lenders now recognize that many buyers/borrowers would simply put their parent or spouse on title after closing, which caused the lenders lots of problems when they wanted to foreclose on properties co-owned by a borrower and a nonborrower.
As a result, many lenders will now allow a co-buyer/owner to go on title during a purchase transaction, even though they are not a co-borrower on the mortgage loan. This way, they can make all the required disclosures and obtain the co-owner’s acknowledgment and understanding that the property is securing a mortgage and will be subject to foreclosure on default.
So, your request is/was a doable thing, although it might not have been in the past. You might have selected an attorney who is not aware of these recent changes, or does not understand how to effect them. The solution she has proposed — putting your mother on title after closing — is the old-school way of handling this situation.
Although your arrangement is feasible, logistically, I’m concerned about your plan to use your mother as a faux, or "straw," owner just for purposes of obtaining what I’m assuming is a sort of senior’s tax advantage.
I’m making some assumptions here, but you might be in violation of the tax law guidelines if your mother will not be an occupant or bona fide owner of the property, and is rather an owner in name only so that you can receive the tax benefit. Consult with a real estate or local tax attorney for details on how to keep your nose clean in this arena. …CONTINUED
Secondly, if you’re not careful about how you take title — and if you’re not careful planning your estate and your mother’s estate — this arrangement could create unintended tax and other consequences if something happens to you or your mother.
For example, your siblings could end up inheriting part of your mother’s ownership share, or your mother could end up inheriting part of your heir’s share — even if you don’t currently have heirs other than her. Things change, and people tend to forget to change their title and estate plans as quickly as they change their lives.
Now, in terms of what you did wrong, perhaps your ownership strategy was ill-advised, maybe not — I don’t have all the facts. Certainly you had a breakdown of communication with your closing attorney — maintaining clarity as to your needs throughout the transaction would have avoided this last-minute, pressured situation.
If you wanted to put someone on title as an owner who is not on the mortgage, that arrangement needed to be in process with your mortgage broker and attorney’s involvement throughout this transaction, as your lender may or may not be OK with that arrangement, and your mortgage professional would have needed to find a lender who was fine with it.
One thing you might have done wrong is taken your attorney’s word for it without getting a second opinion, or giving up too soon. It’s not necessarily too late to make this happen now — enlist your real estate and mortgage brokers’ advocacy to persuade the lender and attorney to set the closing documents up so that you sign the loan documents alone while your mother can sign only the documents securing the loan by the property.
It might be worth a short delay to make this happen. If you can’t execute your arrangement before closing, consider working with a different attorney next time, and see if you can find one who will draft the deed adding your mother without charging you for a full-blown title search, given the recency of your most recent title-insured transaction.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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