All in the Family

[skowalski]

What is the name of your state (only U.S. law)? CA

I've been Googling myself in circles for the last 3 hours, so I'm posting here with hope that someone can help me out. I'm buying property where the inlaws are both Seller and Lender.

1. My wife co-owned her home with her parents, with each party holding an undivided 50% interest as tenants in common. We decided to purchase the parents' share. The parents offered to give us a personal loan at the IRS minimum interest rate.
2. We appraised the property to come up with a fair purchase price.
3. We signed a Promissory Note for the purchase price, but it is not notarized or recorded.
4. We recorded a Grant Deed transferring the property to us as community property "for a valuable consideration, receipt of which is hereby acknowledged."
5. We filed a Preliminary Change of Ownership Report listing the promissory note details.

Now I'm unsure what to do next. I want to get this right, and file the appropriate paperwork so that the mortgage interest is tax deductible.

Do I:

a) Do nothing, I'm done.
b) Notarize and Record the Promissory Note.
c) Record a Deed of Trust that references the promissory note. (Is there any conflict with the Grant Deed already recorded?)

THANKS in advance!

[FlyingRon]

It's not necessary for you to record anything other than the deed. It may be in your parents best interest to record a deed or trust or similar instrument. This will give them security in the case something happens to you. Otherwise you could take out a another loan on the property and it would be in senior position. In the event that you defaulted (or even predecease your parents) hey could be left high and dry.

[skowalski]

Thanks for the quick response!

[seniorjudge]

Originally Posted by skowalski

What is the name of your state (only U.S. law)? CA

I've been Googling myself in circles for the last 3 hours, so I'm posting here with hope that someone can help me out. I'm buying property where the inlaws are both Seller and Lender.

1. My wife co-owned her home with her parents, with each party holding an undivided 50% interest as tenants in common. We decided to purchase the parents' share. The parents offered to give us a personal loan at the IRS minimum interest rate.
2. We appraised the property to come up with a fair purchase price.
3. We signed a Promissory Note for the purchase price, but it is not notarized or recorded.
4. We recorded a Grant Deed transferring the property to us as community property "for a valuable consideration, receipt of which is hereby acknowledged."
5. We filed a Preliminary Change of Ownership Report listing the promissory note details.

Now I'm unsure what to do next. I want to get this right, and file the appropriate paperwork so that the mortgage interest is tax deductible.

Do I:

a) Do nothing, I'm done.
b) Notarize and Record the Promissory Note.
c) Record a Deed of Trust that references the promissory note. (Is there any conflict with the Grant Deed already recorded?)

THANKS in advance!

...
c)
...

[nextwife]

Just curious.

Did you get title insurance, or, at minimum, run A TITLE SEARCH to be certain there was nothing of record against their interest?

[HomeGuru]

I'll wait and see.

[tranquility]

There is nothing more which *needs* to be done. It's not the way I'd have done it, but, whatever.

[skowalski]

Thanks everyone for following up... I think I need to agree with SeniorJudge and actually file a Deed of Trust to ensure the mortgage interest is tax deductible. Found this on the IRS website:

Secured Debt

You can deduct your home mortgage interest only if your mortgage is a secured debt. A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that:

• Makes your ownership in a qualified home security for payment of the debt,
• Provides, in case of default, that your home could satisfy the debt, and
• Is recorded or is otherwise perfected under any state or local law that applies.

In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt. In this publication, mortgage will refer to secured debt.

----

nextwife: No, this is a brand new property whose first owners are as described in the initial post. We used the first Grant Deed / parcel info as the template for this re-do. I called several title insurance companies but they wanted $1000's of dollars to do very little work. Title insurance seems like either an outdated relic or a scam to me, and I'm willing to take the risk in this situation. Maybe someone can convince me otherwise as to potential stupidity here, but it's probably too late at this point.

tranquility: I'd be interested to hear how you would have done it, if only for curiousity's sake!