Real Estate Matters: Where there's a will, there's a low-cost way to transfer homes

Friday, August 29, 2008 at 3:00am

Q: I am the co-executor of an estate of a relative and was left the house in the will. We have been unable to sell the house. I've been paying the mortgage and costs for a couple of years. I recently decided to move into the house.

Will the mortgage companies (original and equity lenders) transfer the home into my name and qualify me for a new mortgage based on my credit? Is it possible to avoid closing costs? What is the best way to approach the mortgage companies? What is the best and easiest way to transfer ownership of the house to me? Is it possible to have more than one principal homestead tax exemption?

I already have a home. Can I deduct interest and taxes on the property that I previous paid?

A: First, our condolences on your loss. You have quite a few questions, so let’s start with the house you inherited and how to get that home into your name.

Your relative gave you her house under her will when she died. If you are probating the will, your state should have a process to allow you to transfer the ownership of the home from your relative's name to your name.

The attorney assisting you in the probating of the will can help you with the forms necessary to transfer the title from your relative to you. If you don't have anybody helping you, some court clerks can — but are not obligated to — help guide you in the transfer of the property.

Generally, the costs of transferring title this way are not the same as in the sale of a home to a purchaser. You should be able to transfer the home by using an “executor’s deed” (perhaps even a deed issued by the court) and signing the various transfer tax and other forms required in the location in which the home is located. Frequently, you would not have to pay any transfer taxes on the transfer of title to your name as you are not paying any money for the home.

In general, the current lenders would not be involved in transferring the home into your name. In some instances, the transfer to your name of the title to the home would not even trigger what is known as the “due on sale” clause. That provision in most mortgages states that a lender has the right to call the loan due when the property is sold or title to the property is transferred. When a person dies and title is transferred to a spouse or a child, the due on sale clause would not apply.

If the due on sale clause did apply to your situation, it would be at the lender's discretion to exercise it. In the current economic climate it's unlikely the lender would call your loan if you have been prompt and continue to be prompt at making your loan payments.

Once title is in your name, you will have the choice to refinance the loan using your own credit and pay off the prior lenders.

If you were to own more than one home, you would have to declare one of the homes as your principal residence. You generally can only have one principal residence. That primary residence would receive a benefit (also known as a “homestead” exemption) from the local taxing authorities.

You can inquire at your local real estate tax collector's office to determine what are the requirements and limitations on homestead properties where you live. But you'll probably find that you will need to choose one home or the other.

When it comes to the deductibility of real estate taxes and interest payments for the home, the first issue is determining who owned the home and who paid the expenses. If the estate owned the home, the estate should be entitled to deduct the expenses. If you paid for those expenses, you might be entitled to reimbursement from the estate for those expenses.

If the title was transferred to you, or you are deemed the owner of the home, and you paid the interest payments on the home loans along with the real estate taxes, you might be entitled to deduct those expenses if the home was your primary residence or if it was your second home, but only in some circumstances. If you have multiple homes, you may be out of luck.

The reason the situation might be more complicated is that other factors might affect your ability to deduct these expenses. Among these issues are the date on which your relative died, how much money you earn, how many homes you own (including vacation homes), when and how much you paid for these expenses and for what period of time, and, finally, when you took title to the home.

For more details, please consult with your tax advisor and the estate or probate attorney who is assisting you.

Contact Glink through her Web site, thinkglink.com

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