obtaining a mortgage for rental property purchase from father

[emtp]

What is the name of your state (only U.S. law)? CA. In 1999 purchased home with fha loan for $176,500 father co-signed so he was on the titile also. Move FWD to 2004 divorce happened and credit became tarnished(BK ETC.) Credit now restored. Father advise me to quit claim the property to him(2004) so he could refi the property(lower rates). House has current loan balance of $210,000 and current market value is $415,000. My father has been claiming it as a rental property with yearly depreciaition factored in and I've made all payments since day one of the purchase. Need to acces the equity to pay off sum debt and do some upgrades to house. My father could not obtain a HELOC due to unfavorable DTI ratio as he is retired with not enough yearly income. Very frustrating situation as there is over 200,000 in equity and I cant even tap into it. How can I obtain a mortgage and access 90,000 in funds from the equity?

 

[tranquility]

You are not in a good place to do anything like what you want. You both have been misreporting this partnership on your tax returns. Any bank that will make a loan on income property will require submission of prior year's tax returns before making a loan. Your only real options seem to be to adjust ownership to reflect reality and see if you can shop around for a loan. Perhaps put the property in an LLC with both personally guaranteeing whatever loan you get.

 

[LdiJ]

What is the name of your state (only U.S. law)? CA. In 1999 purchased home with fha loan for $176,500 father co-signed so he was on the titile also. Move FWD to 2004 divorce happened and credit became tarnished(BK ETC.) Credit now restored. Father advise me to quit claim the property to him(2004) so he could refi the property(lower rates). House has current loan balance of $210,000 and current market value is $415,000. My father has been claiming it as a rental property with yearly depreciaition factored in and I've made all payments since day one of the purchase. Need to acces the equity to pay off sum debt and do some upgrades to house. My father could not obtain a HELOC due to unfavorable DTI ratio as he is retired with not enough yearly income. Very frustrating situation as there is over 200,000 in equity and I cant even tap into it. How can I obtain a mortgage and access 90,000 in funds from the equity?

You should have included this question in your other thread.

You father can sell you the house for 300k instead of 210k and then gift you the 90k cash. However, that may cause you father to have to pay capital gains tax on some of the money. See a mortgage broker and a tax pro.

 

[emtp]

You are not in a good place to do anything like what you want. You both have been misreporting this partnership on your tax returns. Any bank that will make a loan on income property will require submission of prior year's tax returns before making a loan. Your only real options seem to be to adjust ownership to reflect reality and see if you can shop around for a loan. Perhaps put the property in an LLC with both personally guaranteeing whatever loan you get.

I've basically been a renter paying the mortage,taxes & ins along with upkeep expenses etc. My tax filing reflect no home interest since quit claimed my interest to my father in 2004. His tax guy told him he would be on the hook for a $60,000 tax bill due to depreciaition? and capital gains?

 

[LdiJ]

I've basically been a renter paying the mortage,taxes & ins along with upkeep expenses etc. My tax filing reflect no home interest since quit claimed my interest to my father in 2004. His tax guy told him he would be on the hook for a $60,000 tax bill due to depreciaition? and capital gains?

He does have to recapture depreciation but that sounds a bit high. Depreciation for rental property is 27.5 years, straight line, so that would mean that over the last 10 years he would have depreciated about 6420.00 per year or 64200.00 overall. Even if he is in the 32% tax bracket that's going to be about 20500.00. Then if he sells it to you for higher than the 176k basis then 15% capital gain on the amount over his basis...with possibly the 3% medicare surcharge.

I don't see it hitting more than about 40k all together...and only that if he sells it to you for a high enough price to give you 90k in cash after the mortgage is paid down. Unless your dad's CPA did something very weird with the depreciation I cannot see that part getting anywhere close to 60k. Again, using the 32% bracket, which is probably too high, he would have had to have fully depreciated, or almost fully depreciated the house in order to reach 60k in depreciation recapture tax. If he is in the 28% or even 25% bracket then the numbers would be even lower.

 

[tranquility]

I've basically been a renter paying the mortage,taxes & ins along with upkeep expenses etc. My tax filing reflect no home interest since quit claimed my interest to my father in 2004. His tax guy told him he would be on the hook for a $60,000 tax bill due to depreciaition? and capital gains?

You did not file a gift tax return for the original gift.

There could be a claim of a resulting trust if the transfer was not a gift, but solely to help with refinancing. Because property was not treated as such on both parties tax returns, it makes the argument harder. I think this was your intent, but the treatment is problematical.

There has been a loan in excess of the basis and, unless it was used for capital costs of the property, the interest should probably have been deducted on Schedule A rather than Schedule E.

Because the claim of a resulting trust is harder, you don't really HAVE any "equity" to tap--you would have some hurdles to prove some of that belongs to you. (Unless dad gifts part back.)

I am uncertain about the timeline of the BK and divorce so can't really opine as to if you would be estopped from making any contrary claim or be guilty of some sort of fraud for the transfer without value.

You have an ugly mess. See an attorney with dad to see if he can discover any way out of things.

Between the recapture of depreciation and the capital gain, I'd estimate the taxes at less than the $60K estimate. Straight line would bring us in at about $44K. I did not do the back of the envelope for accelerated but wonder if the original depreciation was based on the entire property (land + building) and not just the building value.

 

[emtp]

You did not file a gift tax return for the original gift.

There could be a claim of a resulting trust if the transfer was not a gift, but solely to help with refinancing. Because property was not treated as such on both parties tax returns, it makes the argument harder. I think this was your intent, but the treatment is problematical.

There has been a loan in excess of the basis and, unless it was used for capital costs of the property, the interest should probably have been deducted on Schedule A rather than Schedule E.

Because the claim of a resulting trust is harder, you don't really HAVE any "equity" to tap--you would have some hurdles to prove some of that belongs to you. (Unless dad gifts part back.)

I am uncertain about the timeline of the BK and divorce so can't really opine as to if you would be estopped from making any contrary claim or be guilty of some sort of fraud for the transfer without value.

You have an ugly mess. See an attorney with dad to see if he can discover any way out of things.

Between the recapture of depreciation and the capital gain, I'd estimate the taxes at less than the $60K estimate. Straight line would bring us in at about $44K. I did not do the back of the envelope for accelerated but wonder if the original depreciation was based on the entire property (land + building) and not just the building value.

BK was in 2004 along with finalization of divorce. No written notarized contract or legal documentation was created for the transfer/ quit claim. Just verbal agreement between my father and I on why to do the quit claim which was for a refi to get better rate as my credit became tarnished secondary to ex-wife's antics! Move forward to current timeline as my credit is in a better standing and would like to get house back into my name soley and take out sum equity if possible

 

[tranquility]

BK was in 2004 along with finalization of divorce. No written notarized contract or legal documentation was created for the transfer/ quit claim. Just verbal agreement between my father and I on why to do the quit claim which was for a refi to get better rate as my credit became tarnished secondary to ex-wife's antics! Move forward to current timeline as my credit is in a better standing and would like to get house back into my name soley and take out sum equity if possible

See an attorney. I don't see how you can quitclaim out of the property for not value without the BK being affected. (Unless you were upside down at the time.) All the other problems mentioned previously as well. But, the bottom line is it seems YOU have no equity in the house. None. Dad does.

Because of how poorly you both handled things, I don't see an easy way out of the problem unless dad is willing to gift his property back to you.

 

[LdiJ]

See an attorney. I don't see how you can quitclaim out of the property for not value without the BK being affected. (Unless you were upside down at the time.) All the other problems mentioned previously as well. But, the bottom line is it seems YOU have no equity in the house. None. Dad does.

Because of how poorly you both handled things, I don't see an easy way out of the problem unless dad is willing to gift his property back to you.

I can see an easy way...just not a tax free way. Dad sells the property to son and takes the tax hit. Dad either sells to the son high enough (if the son qualifies for the mortgage) to have money left over to gift to son, or son gets his own home equity loan (assuming he qualifies) after the house is in his name.

 

[tranquility]

I can see an easy way...just not a tax free way. Dad sells the property to son and takes the tax hit. Dad either sells to the son high enough (if the son qualifies for the mortgage) to have money left over to gift to son, or son gets his own home equity loan (assuming he qualifies) after the house is in his name.

Selling to a related party for less than FMV is going to change some of the capital gain to ordinary income notwithstanding the recapture. A planned gift that is a part of the deal is going to be applied to the calculation of FMV and will have to be disclosed to the bank up front. At the end of the day, for son to be able to get any money out, dad is giving it to him. It seems silly to sell the thing and pay the tax when a gift would only need to be reported.

 

[LdiJ]

Selling to a related party for less than FMV is going to change some of the capital gain to ordinary income notwithstanding the recapture. A planned gift that is a part of the deal is going to be applied to the calculation of FMV and will have to be disclosed to the bank up front. At the end of the day, for son to be able to get any money out, dad is giving it to him. It seems silly to sell the thing and pay the tax when a gift would only need to be reported.

I am not sure that we are disagreeing...and am not sure that we are not. If you sell a property at X amount and they give a gift of equity at Y amount you still have to deal with the sales price.

 

[tranquility]

I am not sure that we are disagreeing...and am not sure that we are not. If you sell a property at X amount and they give a gift of equity at Y amount you still have to deal with the sales price.

I think we are in agreement.

1. Tax calculation seems high.
2. For OP to get any equity out, he is going to be getting a gift from dad in some way.

For me, but for the gift, I don't see how OP can get any money from equity.

OP, what is your plan? What size loan will you seek? How do you think ownership will be allocated after everything is done?

 

[emtp]

I think we are in agreement.

1. Tax calculation seems high.
2. For OP to get any equity out, he is going to be getting a gift from dad in some way.

For me, but for the gift, I don't see how OP can get any money from equity.

OP, what is your plan? What size loan will you seek? How do you think ownership will be allocated after everything is done?

The only reason I quit claimed my name off the title was was so my father could refi the original fha loan to a better rate and get rid of PMI due the fact home values went up. My credit was shot and with my name on the loan no refi would happen. He owns the property on paper and I've made all payments on the house from day one including keeping the upkeep and maint. There's no sinister plot on my dad's part , my parents actually live less than a mile from me. Interest rates were low at the time and with pmi being removed it was helping me out by lowering my monthly mortgage payment. Need a loan that will allow me to pull out 90 grand whatever that will take and to relieve my father of the stressers of having a second house in regards to taxes etc. Due the fact we cant access any equity he had to pull money out of his IRA to put a new roof on last month

 

[tranquility]

The only reason I quit claimed my name off the title was was so my father could refi the original fha loan to a better rate and get rid of PMI due the fact home values went up. My credit was shot and with my name on the loan no refi would happen. He owns the property on paper and I've made all payments on the house from day one including keeping the upkeep and maint. There's no sinister plot on my dad's part , my parents actually live less than a mile from me. Interest rates were low at the time and with pmi being removed it was helping me out by lowering my monthly mortgage payment. Need a loan that will allow me to pull out 90 grand whatever that will take and to relieve my father of the stressers of having a second house in regards to taxes etc. Due the fact we cant access any equity he had to pull money out of his IRA to put a new roof on last month

EXCEPT, you had a BK and divorce between then and now. I suspect you will be estopped from claiming any ownership under the only theory possible. A resulting trust (Your theory on how you have ANY rights.) cannot be illegal under trust law as a theory. It seems your former wife and former creditors were hurt by your gift that was not recorded in the proper way.

I care nothing of your theory. I care nothing of your justification. I see no way to your victory. Especially when compared to what I think your goals are. (As related to the specific questions asked and not answered.)

The answer is no. You get nothing.

For more, see an attorney who will charge a lot for a hard fight. (Depending on who opposes.)

 

[emtp]

EXCEPT, you had a BK and divorce between then and now. I suspect you will be estopped from claiming any ownership under the only theory possible. A resulting trust (Your theory on how you have ANY rights.) cannot be illegal under trust law as a theory. It seems your former wife and former creditors were hurt by your gift that was not recorded in the proper way.

I care nothing of your theory. I care nothing of your justification. I see no way to your victory. Especially when compared to what I think your goals are. (As related to the specific questions asked and not answered.)

The answer is no. You get nothing.

For more, see an attorney who will charge a lot for a hard fight. (Depending on who opposes.)

what does a BK that's off my credit history and a divorce half to do with buying a house back from my father?? Doesn't seem like rocket science to me? I'm trying to avoid attorney's. A mortgage broker I'm consulting with said I just need to be able to qualify for a mortgage and based on my yearly income and being at my current job for 20 years now should be satisfactory along with credit score of 680. This isn't some legal battle where im looking for a victory? I'm not sure what you are referring to about a gift in relation to creditors and ex wife? I just removed my name from the title. Please explain estopped? not sure of that verbage