Adding a Name to Deed, with Mortgage

[mxw1090]

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

I own my home as a single woman in AZ. I have a 1st Mortgage and a HELOC with a different lender. I do not plan on selling the property and I do not plan on refinancing. I currently have very low fixed rates, with 15 years left on the mortgage. I have 1 son and no other family. In the event of my death I want to leave the property to my son and of course avoid probate and inheritance taxes. I know this can be done with a trust but since I have only one beneficary and no possibility of any one contesting I thought it would be better to just add his name to the title of the property as co owner. I believe this can be done by filing a Quit Claim Deed. If I file this and place both our names as co-owners, will this impact the mortgage in any way? Also is there any special designation on how the names are specified? I believe I've seen something about right of survivorship.

[Stevef]

Transferring ownership from you to you and your son may make the balance of the mortgage due immediately.

[tranquility]

Not only that, but there are tax considerations too. In the first place, adding a name would be a reportable gift. In the second, the son will take the basis of the OP. This may or may not be a good thing. Generally, long-held property will get a step up in basis (reducing eventual capital gains taxes) when inherited. Not so with a gift.

[FlyingRon]

As pointed out, this is not necessarily a good idea. How old are you now?
If you are anywhere near the medicare age you may be screwing your eligibility. If you ever decide you need a reverse mortgage, a younger co-owner can disqualify you for that.

While the estate tax laws are changed with the whim of congress, unless this house is worth mililons, there probably isn't going to be a federal estate tax issue. There's not currently an Arizona estate tax. Again, your son will not get the stepped up basis.

There are better ways to avoid probate. A trust is one way.

Contrary to what others have told you, a due-on-sale clause is federally preemted when the change is merely the addition of a child of the borrower (and the borrower remains an owner).

[latigo]

Confucius said, "Everything in life is impermanent and is consistently changing".

And he might have added that it is not always for the best nor predictable. So don't do it!

[tranquility]

Contrary to what others have told you, a due-on-sale clause is federally preemted when the change is merely the addition of a child of the borrower (and the borrower remains an owner).

I didn't see where the OP wrote the son was living or will live with her.

TITLE 12 - BANKS AND BANKING
CHAPTER V - OFFICE OF THRIFT SUPERVISION, DEPARTMENT OF THE TREASURY
PART 591 - PREEMPTION OF STATE DUE - ON - SALE LAWS
591.5 - Limitation on exercise of due - on - sale clauses.

(Emphasis mine)

(b) Specific limitations. With respect to any loan on the security of a home occupied or to be occupied by the borrower, (1) A lender shall not (except with regard to a reverse mortgage) exercise its option pursuant to a due-on-sale clause upon: (i) The creation of a lien or other encumbrance subordinate to the lender's security instrument which does not relate to a transfer of rights of occupancy in the property: Provided, That such lien or encumbrance is not created pursuant to a contract for deed; (ii) The creation of a purchase-money security interest for household appliances; (iii) A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety; (iv) The granting of a leasehold interest which has a term of three years or less and which does not contain an option to purchase (that is, either a lease of more than three years or a lease with an option to purchase will allow the exercise of a due-on-sale clause); (v) A transfer, in which the transferee is a person who occupies or will occupy the property, which is: (A) A transfer to a relative resulting from the death of the borrower; (B) A transfer where the spouse or child(ren) becomes an owner of the property; or (C) A transfer resulting from a decree of dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement by which the spouse becomes an owner of the property; or (vi) A transfer into an inter vivos trust in which the borrower is and remains the beneficiary and occupant of the property, unless, as a condition precedent to such transfer, the borrower refuses to provide the lender with reasonable means acceptable to the lender by which the lender will be assured of timely notice of any subsequent transfer of the beneficial interest or change in occupancy.

[FlyingRon]

I didn't see where the OP wrote the son was living or will live with her.

He doesn't have to. The operative law is 12 USC 1701j-3

With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon—

(6) a transfer where the spouse or children of the borrower become an owner of the property;

Part of the Garn-St. Germain act.

[tranquility]

Look down a little further:

(e) Rules, regulations, and interpretations; future income bearing loans subject to due-on-sale options
(1) The Federal Home Loan Bank Board, in consultation with the Comptroller of the Currency and the National Credit Union Administration Board, is authorized to issue rules and regulations and to publish interpretations governing the implementation of this section.

I posted said regulation.

The difference is noted in many places on the internet. I used the term:

12 USC "1701j-3" "591.5"

[anteater]

May I humbly suggest what may be the best of all possible universes:

Arizona recognizes beneficiary deeds.

http://www.azleg.state.az.us/ars/33/00405.htm

[mxw1090]

Possibly the bedeficiary Deed may be the way to go. I looked at the link but it doesn't say anything about tax info.

Right now AZ property values are in the toilet so a gift tax now may be a lot less than inheritance tax in 10+ years.

The value of the property now is about 70K. At the heart of the housing boom 3-4 years ago it was worth about $350k. With that much change who knows what it will be 10 years from now.

I will never do the reverse morgage, this property has already been promised to my son.

[anteater]

Possibly the bedeficiary Deed may be the way to go. I looked at the link but it doesn't say anything about tax info.

Are you referring to estate tax? Or some other tax?

For this year and next, the exemption amount for federal estate tax is $5 million. Granting the wisdom of what Latigo said above (whatever it was, exactly), I just can't see that exemption amount being decreased again. But I've been known to be wrong on occasion.