Name removal from house title

[Torellian]

What is the name of your state? Wisconsin

A question regarding names on house title: My dad gave me a loan to help me with buying my house. Now until I pay off the entire loan, we have both of our names on the title as joint owners. After that, we agreed that his name would be taken off and I would be the sole owner.
But I was told that when that happens, it would be like he was "giving" me half of the house by taking his name off, and I would have to pay the government a "gift tax". Is this right? Or is there a way of getting around it?

 

[abezon]

No, that's incorrect. Since you're paying him for the loan, you purchased the house from him. Be sure to keep the loan documents with your house papers until you sell it.

Technically, it would have been better to have the house in your name & for him to record a secondary lien on the house & record the loan papers. This way his creditors cannot go after the house. You cannot get a second mortgage if you don't have the equity to cover both loans. Also, he can foreclose if you stop paying him, rather than trying to force you to sell. Finally, if you stop payments & the bank forecloses, he gets paid if there's any money left over after the bank sale. You only get $$ after the bank & your dad are paid off. You could still convert the deal to a loan/lien now if you like. It offers you both more protection.

 

[Torellian]

Abezon,
Thank you for your reply!
Actually, the loan he gave me was "private". The only documentation was a promisory note we both signed and have a copy of, and he gives me a receipt when I pay him each month. Nothing is "recorded" as I understand it to mean; filed with a bank or the government. I assume what we're doing is legal!?!?

 

[abezon]

Yes, it's legal. But if dad records the note on the house title (county recorder's office), you get that protection I was talking about. I assume the note says something like "Son promises to pay Dad $xx,xxx, to be secured by Son's house, located at _______________ and legally described as ________________." If not, you can always do a new note and record that. This lets you take dad's name off the title now. Depending on Dad's age & health, that might be a good thing to do with respect to Medicaid/Medicare.