Dear Benny: My brother bought his home about 15 years ago.
He holds title only in his name, as a “single man.” He lost his job a couple of years ago.
He is older and is having a difficult time getting rehired. Long story short: He is now in arrears (18 months), owes escrow for taxes and insurance payments and is facing foreclosure. His lack of employment is presenting a problem getting loan modifications or refinancing.
I am in a position to help him by paying up all his arrears and escrows. I can then handle all future payments.
His mortgage balance is approximately half the current value of the house, so the idea would be that we both become half-owners. Even though the loan will continue to be in his name (I cannot get a new loan), he wants to deed half the property to me and show us as tenants in common.
I understand he can quitclaim to himself and me as tenants in common, but here is the wrinkle: He married about five years ago, and his wife is not on the loan or the title.
Would my brother quitclaim as the current title describes him (single man) or would he have to describe himself as “married man”? And does his wife have to sign as well? –Jorge
Dear Jorge: You are a good brother and I applaud your concern for your family. However, there are a couple of hurdles you have to overcome.
First, I am sure that your mortgage — called “deed of trust” in many states — contains what is known as a “due on sale” clause. This is designed to protect a lender and stop someone with a very low interest rate from selling the property to a third party, who will assume that low-interest-rate loan.
There are a number of exceptions to the “due on sale” clause, such as a transfer between husband and wife, or a transfer to a relative on the death of an owner. (For a full list of exceptions, type “due on sale” into your preferred Web browser, and click on “US Code §12-1701j-3.”)
Unfortunately, there is no exception for a transfer from brother to brother. So you have two alternatives: Either do the transfer and take the risk that the lender will call the loan due, or, better yet, contact the lender and get its permission. While I cannot guarantee success, I suspect that the lender would prefer your arrangement rather than having to foreclose.
The second hurdle deals with the gift tax. If your brother just gifts you half of the house, and since I assume that the value of that half is more than $13,000 (the maximum a person can give on a yearly basis tax free), then he will have to file a gift tax return.
(Note: If you happen to be married, and your wife will own the half with you, he can gift up to $26,000 yearly, but this still will not solve the problem.)
Your brother will not have to pay any tax, but there may be long-range consequences. Talk to a tax adviser about your specific situation.
A third complication: If your brother gifts you half of the house, your tax basis is his. Let’s say he bought the house for $100,000 and made no improvements. His tax basis is $100,000. If he gifts you have of the house, his basis, and yours, is $50,000 each. When you go to sell the house, since you will not have lived in it for two out of the five years before sale, you will probably have to pay capital gains tax.
My suggestion: Instead of getting half the house as a gift, can you arrange to buy the whole house? This way, your brother has some money, and your tax basis will be the purchase price you paid.
To answer your specific question: Different states have different requirements as to how title should be listed. You will need an attorney to discuss all of these issues, so ask your lawyer how your brother’s title should be listed.
Benny Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to email@example.com.