Check out some similar questions!

REI_Hopeful · Oct 31, 2011, 09:42 PM

My grandma is going to quitclaim her house over to me, she has an outstanding junior trust deed in the amount of $50k, she is asking for $50k cash for healthcare expenses. I was planning on refinancing the property once I am on title the home is valued at $200k. I would attempt to take out approx $110k. Will this transaction be possible? Thank you.

ScottGem · Nov 1, 2011, 03:21 AM

You say there is a "junior deed of trust", this means that a lender has a junior interest in the property. This implies there is a more senior lien on the property. So Grandma can't just simply hand over the property to you.

The prior claims on the property need to be satisfied FIRST. So the first thing you need to do is determine the amount of equity that exists in the property. If it has been appraised at $200K, then there is something less than $150K in equity.

Essentially what you are doing is buying the property from her. You need to obtain financing FIRST. If she needs to clear $50K in cash, then you will need to come up with more than $100K ($50 for her, $50 to pay off the junior deed of trust and whatever else to pay off the other liens).

There is also the aspect of market value. If the house is valued at $200K, you have to pay her what's its worth. If you pay less, she may be considered as gifting you the difference which may involve gift taxes for her.

Also, do you plan on living in the house. Will you be giving her a life estate?

As you can see there are a lot of issues to deal with here. You may want to consult a local real estate attorney.

REI_Hopeful · Nov 1, 2011, 06:24 AM

The 50k is all that is owed on the property. The house was free and clear when she took cash out, there are no liens on it. I am not planning on living in it, it will be an income property for me. Thank you.

ScottGem · Nov 1, 2011, 10:09 AM

Ok, Well you will still need to obtain financing BEFORE you buy the property from her. And you will still need to pay a fair market value for the property.

Is she going to pay you rent while she lives there?

REI_Hopeful · Nov 1, 2011, 10:15 AM

No, she is in a extended care facility. My aunt lives there now but is moving out. My family just wants to get rid of the house, I didn't want a new cash loan because I don't have funds for a down payment. That is why we thought we'd be able to quitclaim and refi paying off original 50k in escrow and taking and additional 50k3 from the equity. Guess its not that easy :(

ScottGem · Nov 1, 2011, 10:23 AM

No its not that easy. You can't transfer the property before satisfying the trust deed. What grandma CAN do is take back a second mortgage in lieu of a down payment. So you can obtain financing for $110K and Grandma can take a $90K second mortgage. This way you don't have to come up with a down payment.

Grandma can then forgive the loan up to $13K a year without paying gift taxes. There are other things you can do about the $90K.

So if what you are trying to do is keep the house in the family there are ways to do it without paying a down payment. Consult a real estate attorney.

REI_Hopeful · Nov 1, 2011, 10:32 AM

No, she is in a extended care facility. My aunt lives there now but is moving out. My family just wants to get rid of the house, I didn't want a new cash loan because I don't have funds for a down payment. That is why we thought we'd be able to quitclaim and refi paying off original 50k in escrow and taking and additional 50k3 from the equity. Guess its not that easy :(

REI_Hopeful · Nov 1, 2011, 10:33 AM

Great, thank you for your advice!