Recommended Posts

My mother in-law lives in Tennessee and has been living in the home that she and my late father-in-law purchased over 40 years ago. He ended up using the house as collateral for an installment loan he took out that still has a balance of about 85,000 on it.  When he died 7 years ago, my mother-in-law took over paying the installment loan.  She's in her 70's and has had some health issues and wants to stay in the house and her daughter wants to buy the house (her daughter lives in the home with her anyway) but they are running into problems getting this done because my mother-in-law's name is only on the deed to the house, not the note. 
 
What steps should they take in order to get my mother-in-law's name added to the note so that she can sell the house to my sister-in-law?  She's tried reaching out to the loan company, CitiFinancial ,but they are unwilling to cooperate.

Share this post


Link to post
Share on other sites

Can I assume that your sister-in-law intends to obtain her own financing and is not in a position to buy the house with cash?

Share this post


Link to post
Share on other sites

As an aside: Basically, the house was equity stripped when it became collateral for the installment loan. That can be a great way to make an asset, in this case a home, worth less, or even worthless, to a potential creditor. A home equity line of credit or a second mortgage would accomplish the same thing. Cash is a lot easier to protect than a house.

Thoughts:

Why not leave things as they are, except have the daughter agree to make payments for the installment loan in return for living in the house, which would pass to her when her mother passes. The agreement would in the form of a written contract regarding the installment loan and, of course, a review of the will.

 

Share this post


Link to post
Share on other sites
8 hours ago, Happybluesky said:

Why not leave things as they are, except have the daughter agree to make payments for the installment loan in return for living in the house, which would pass to her when her mother passes. The agreement would in the form of a written contract regarding the installment loan and, of course, a review of the will.

This is an incredibly BAD idea for so many reasons it is impossible to know where to start.  I would HIGHLY recommend you not DO this at all @irismagnolia.

On 4/16/2016 at 9:21 PM, irismagnolia said:

She's tried reaching out to the loan company, CitiFinancial ,but they are unwilling to cooperate.

The creditor is not going to just add your Mother to the loan.  It is too late at this point.   Mom can refinance it in her name which would pay it off and put the credit in her name but that may not even be necessary.

On 4/16/2016 at 9:21 PM, irismagnolia said:

What steps should they take in order to get my mother-in-law's name added to the note so that she can sell the house to my sister-in-law?

If your SIL is going to buy the house then the purchase price can include the cost of paying off that loan as part of the deal.  The problem she will run in to is that if the purchase price exceeds the value of the home then she would have to come up with the difference in cash which could be impossible as well.

I recommend you consult a real estate attorney to determine the best and most cost effective way of doing this that not only protects Mom but SIL and the house.

Share this post


Link to post
Share on other sites
4 hours ago, Happybluesky said:

The problem with mom selling house to daughter is immediate tax consequences for mom from presumably big capital gain.

What gain?  Not every home sale results in an enormous capital gain.  You have NO idea what the house is worth.  This is TN where there is an abundance of rural area.  For all you know the home is worth $100k and if there is a first and second mortgage then Mom may only realize $3k after commissions, paying off mortgages, and fees.  If the home is underwater she may owe.

4 hours ago, Happybluesky said:

If house is instead inherited by daughter from mom, there are no immediate tax consequences.

WRONG.  Ever hear of an estate tax?  Why do you think so many people create living trusts and deed homes in advance:  to avoid estate taxes.

4 hours ago, Happybluesky said:

If the daughter were to sell the house the instant after it was inherited, she could sell for inflated assessed value without paying a nickel in taxes

You don't know this either.  If the real estate market takes another dive as predicted the home could be worth a lot less and daughter ends up under water.

2 hours ago, CCRP626 said:

Sounds like a visit to a professional is a good idea. Isn't $250,000 in gain not taxable?

It very much is but all of @Happybluesky "scenarios" are based on his imagination.  We have absolutely NO information that Mom would gain $250k by selling the home to the daughter.  It is a made up number.  Second:  @Happybluesky has absolutely NO real estate or tax law knowledge (as evidenced in this post) and even his/her FDCPA/FCRA understanding is spurious at best.  They give some of the most dangerous advice I have read and all of it based on imaginary scenarios they dream up.

4 hours ago, Happybluesky said:

Obviously, estate planning is not always simple, and best to get professional help.

Yes, which is why you should really stop making answers up based on information you don't have and are guessing about with your limited knowledge of real estate and tax law.  The basic question that was asked in in relation to the lien from the loan.  The answer is simple:  they will not simply add Mom to the loan especially since the person who took it out is deceased.  It either has to be refinanced in Mom's name or paid off as part of the sale.  End of discussion.

  • Like 1

Share this post


Link to post
Share on other sites

Like I said above, I misunderstood original question, and edited out most of my earlier replies.

That said, here is a short article on capital gains taxes and inherited property. The gist of the article is that there are no capital gains taxes on inherited property. The reason is that there is a step up in cost basis to the present, which in this case could be huge given that the house was purchased some 40 years ago, and any inheritance is still in the future.

http://www.elderlawanswers.com/do-you-pay-capital-gains-taxes-on-property-you-inherit-12384

The other potential taxes are probably nil except for the very wealthy:

http://wills.about.com/od/Understanding-Estate-Taxes/qt/Will-You-Have-To-Pay-Taxes-On-Your-Inheritance.htm

Share this post


Link to post
Share on other sites

@Happybluesky no harm. If anything what you posted gives areas for the OP to discuss with the pro when they schedule an appointment.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.