Quit Claim Question

My wife and her ex-husband own a house together. My wife lives in the house. I plan to move in and she and I will buy out the ex-husbands equity. He's agreed. We learned the best way to do this is through a cash-out refinance. To begin this process, he is willing to Quit Claim the house to my wife and me. That will allow us to refinance using my income. Question: If the ex-husband quit claims the house to my wife (his ex-wife) and me, does that constitute a gift on his part (since I am not related to him) and would he be liable for a gift tax?

It's nice he wants to cooperate, but you should do it right. Get a settlement house/lawyer (whatever is appropriate in your area) and have them handle the payoff, new note, and deed transfer. It's not a gift, you're buying from him. Presumably he won't have a gain on this so there are no tax issues.

The PROPER way to do a buy out with a quit claim is for either ex to attend the closing (they sit in a different room) and sign the quit claim when the lender is ready to disburse, or they presign and submit to the closing office with instructions to release the deed at payoff. You and wife could basically buy his half interest as a purchase money mortgage.