Parents want me to pay off their mortgage in exchange for title

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Lynx310650
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Parents want me to pay off their mortgage in exchange for title

Post by Lynx310650 »

I wrote about my parents' financial issues before, their small business is in absolutely dire straits now.

Their primary (and only) asset is their primary residence. Comparable sales were about $550k prior to the pandemic. They owe about $180k.

My parents made me the following proposition. I pay off the $180k for them, they hand over the title of the house in entirety to me. I let them live there rent free for the rest of their lives. We'll work out stuff like property tax, maintenance, etc.

I don't know what the legal (esp tax) implications of this would be, and I'm not sure if this would be an optimal financial move for either party. I could scrounge up the 180k in cash if need be and pay it off. It's an interesting chance to own something "worth" over 500k and pay 180k for it, but at the same time I wouldn't be drawing any income off of it.

Wanted to get the opinions of this forum on such a deal.
AlphaLess
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Re: Parents want me to pay off their mortgage in exchange for title

Post by AlphaLess »

Lynx310650 wrote: Tue Apr 21, 2020 2:57 pm I wrote about my parents' financial issues before, their small business is in absolutely dire straits now.

Their primary (and only) asset is their primary residence. Comparable sales were about $550k prior to the pandemic. They owe about $180k.

My parents made me the following proposition. I pay off the $180k for them, they hand over the title of the house in entirety to me. I let them live there rent free for the rest of their lives. We'll work out stuff like property tax, maintenance, etc.

I don't know what the legal (esp tax) implications of this would be, and I'm not sure if this would be an optimal financial move for either party. I could scrounge up the 180k in cash if need be and pay it off. It's an interesting chance to own something "worth" over 500k and pay 180k for it, but at the same time I wouldn't be drawing any income off of it.

Wanted to get the opinions of this forum on such a deal.
More information needed to make a decision.

If this were me, I would pay off the mortgage, and let them keep the house, and leave there too.

But $180K to us is a drop in a bucket.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Jack FFR1846 »

You know the right answer here. Your parents need to sell the house and take what they get, wind down the hobby of a business and rent a 1 bedroom apartment.

All these shell games of they sell to you and they live there and you collect no rent is going to bite you and bite you hard.
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Pablov
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Pablov »

Without any additional info it sounds like a good deal. On the one hand you help them out and on the other you bought yourself a house for cheap.

3 things would make me hesitate:

- Siblings (if any): The whole deal would probably not go too well with them and would mess up whatever relation you have.
- The exact situation your parents are in. They might see this as their only option and you might be effectively taking advantage of their situation.
- Age of you parents. If they are in their 50s for example you might be looking at many years before you can actually take advantage of this gift.

Do consult an attorney or do some very good research on the topic if you are considering this. Gifting the equity of their house, you letting them live there rent free, etc might be done in several ways (tittle, Trust, irrevocable trust, etc.) and there might be tax consequences you should be aware of.

Good luck.
Millennial
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Millennial »

One tax implication: if you get the house as a gift, you get their cost basis. If you buy it for the payoff, your basis will be $180k. If you inherit the house, your basis is the value at the time of their passing. If they've owned it a while, this could mean a $100k+ tax bill when you sell.
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Watty
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Watty »

Lynx310650 wrote: Tue Apr 21, 2020 2:57 pm I don't know what the legal (esp tax) implications of this would be, and I'm not sure if this would be an optimal financial move for either party.
You really need legal advice since it could be a mess if they declared bankruptcy and it looks like they were trying to hide assets.

You also need to consider all sorts of possible permutations like if you die first, you get divorced, your parents get divorced, or one of them is widowed then gets remarried. It is also very likely that at some point as they age it might make sense for them to move into some sort of senior community or assisted living.

It would be worth asking if a trust might make sense.

There are lots of pros and cons but having them get a reverse mortgage might also be an option for them.

I would assume that doing this might also cause you or them to lose the homeowners capital gains exemption and the stepped up cost basis when they die.
Olemiss540
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Olemiss540 »

Are there any other potential heirs? What is your parent's age?

There are many ways this ends up straining relationships, and personally I do not think it's fair to put the burden of your dire financial situation on your children when there are alternative options to raise capital that wont also potentially negatively impact your children's liquidity.

Can they do a cash out refinance? What's next once they burn through the $180k? Do they then come back to you for further support? What is stopping them from selling and moving?

Tough situation and I feel for you being thrust into a difficult circumstance. How about you buy the house for $450k and then charge them rent? Would seem to be a little more straight forward and mitigate the "for life" aspects while providing you some income to help pay for longer term maintenance issues (roof, plumbing, electrical, etc etc). An appraisal would be good to have as well as an inspection, not to safeguard from your parents lying but to ensure no hard feelings as items pop up that they could have potentially disclosed.

No easy answer, just giving some random thoughts! Good luck.
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tvubpwcisla
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Re: Parents want me to pay off their mortgage in exchange for title

Post by tvubpwcisla »

I would never do business with family. It always ends badly.
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FI4LIFE
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Re: Parents want me to pay off their mortgage in exchange for title

Post by FI4LIFE »

If you want to help them, hire them a good lawyer to advise them.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Dottie57 »

FI4LIFE wrote: Tue Apr 21, 2020 3:44 pm If you want to help them, hire them a good lawyer to advise them.
+1
HomeStretch
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Re: Parents want me to pay off their mortgage in exchange for title

Post by HomeStretch »

Your parents’ plan per a prior post to sell the house makes more sense financially if they can rent a place with less square footage/lower total cost/easier maintenance. The house equity can pay for many years of a rental.

Even if you payoff the mortgage and gift them the house, it doesn’t seem like their income will be high enough to allow them to keep the house for the next 20+ years. You might need to pay annually the property taxes, insurance, maintenance costs, etc. If they needed to use Medicaid, it’s possible some or all of the house proceeds when eventually sold would be required to reimburse Medicaid.

Emotionally, I can certainly understand if you gifted the house mortgage-free and pay the related costs going forward. As long as it’s not to the detriment of your own retirement.
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KlingKlang
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Re: Parents want me to pay off their mortgage in exchange for title

Post by KlingKlang »

Good comments so far on the legal and tax issues of this plan.

Getting back to basics: if your parents have no income producing assets, give their house to you, and run a defunct business, where is the money for their non-housing living expenses going to come from?
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Re: Parents want me to pay off their mortgage in exchange for title

Post by PVW »

Lynx310650 wrote: Tue Apr 21, 2020 2:57 pm We'll work out stuff like property tax, maintenance, etc.
If you are considering this as an act of charity, you should assume that at some point you will need to pay for all housing associated costs.
Monsterflockster
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Monsterflockster »

Lynx310650 wrote: Tue Apr 21, 2020 2:57 pm I wrote about my parents' financial issues before, their small business is in absolutely dire straits now.

Their primary (and only) asset is their primary residence. Comparable sales were about $550k prior to the pandemic. They owe about $180k.

My parents made me the following proposition. I pay off the $180k for them, they hand over the title of the house in entirety to me. I let them live there rent free for the rest of their lives. We'll work out stuff like property tax, maintenance, etc.

I don't know what the legal (esp tax) implications of this would be, and I'm not sure if this would be an optimal financial move for either party. I could scrounge up the 180k in cash if need be and pay it off. It's an interesting chance to own something "worth" over 500k and pay 180k for it, but at the same time I wouldn't be drawing any income off of it.

Wanted to get the opinions of this forum on such a deal.
Everyone has different relationships with their parents. For me, if my parents needed help and asked me to buy the family home to save it I would. I would do it for my parents and not consider it as losing income but spending it on people I cared about. Considering there’s another thread on here how most paid for their children’s education I’m surprised more would not do the same here.
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whodidntante
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Re: Parents want me to pay off their mortgage in exchange for title

Post by whodidntante »

If your parents need money, give them money with no expectation of anything in return and no restrictions on how it is used. Owning their house sounds like a bad idea. The house might be coming to you someday anyway, at least what they didn't need to extract from it, which might be everything.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Christine_NM »

Unless you are more than comfortable financially, don't do it on these terms. If you don't pay prop tax and do maintenance, it will not get done. Then, assuming you have paid the tax each year, after they are deceased the house will need a lot of work before you can sell. The initial 180k sounds like the least of your problems. Can you offer to help with mortgage payments in an amount that doesn't hurt you for the rest of the year, and see where they are next year?

If you really want no part of this then you must say so now. That can hurt more than paying to help them, but it must be done if it's true, which is how I read your post. But I may be wrong.
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JoeRetire
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Re: Parents want me to pay off their mortgage in exchange for title

Post by JoeRetire »

Lynx310650 wrote: Tue Apr 21, 2020 2:57 pm I wrote about my parents' financial issues before, their small business is in absolutely dire straits now.

Their primary (and only) asset is their primary residence. Comparable sales were about $550k prior to the pandemic. They owe about $180k.

My parents made me the following proposition. I pay off the $180k for them, they hand over the title of the house in entirety to me. I let them live there rent free for the rest of their lives.
Does this get them permanently out of their dire straits?
We'll work out stuff like property tax, maintenance, etc.
Work it out before you commit to anything. Don't leave this sort of thing hanging.
Make sure you figure out insurance.
I don't know what the legal (esp tax) implications of this would be
Whenever dealing with real estate, you need to run it by a lwayer.
and I'm not sure if this would be an optimal financial move for either party. I could scrounge up the 180k in cash if need be and pay it off. It's an interesting chance to own something "worth" over 500k and pay 180k for it, but at the same time I wouldn't be drawing any income off of it.
How would you "scrounge" it up? Would this leave you in a difficult financial situation?
Could you still afford all the taxes, maintenance, insurance, and other fees associated with the property?

It could easily be a good deal for you. Seems like a poor deal for your parents. It could be a terrible deal for any siblings.

They should just sell and find an inexpensive place to live, IMHO.
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Carefreeap
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Carefreeap »

Hi,

You might want to update the O.P. with this thread:
viewtopic.php?f=2&t=299097&p=4922595#p4922595

At this point I would suggest that you help them get a reverse mortgage and encourage them to get intro jobs if they can find them. I didn't see what metro area they are in but property values in Coastal CA should probably hold up or bounce back over a few years.

You DO NOT want to get sucked into repairs for this house or other problems they may have associated with "your house". They can live a looong time e.g. maybe into their 80s. ETA You don't want to be the "parent" they complain to every time something goes wrong for the next 20+ years. Also do you have siblings? If so, that's another can of worms with their proposed "deal".

Good luck.
Last edited by Carefreeap on Tue Apr 21, 2020 4:22 pm, edited 1 time in total.
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learntogrow
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Re: Parents want me to pay off their mortgage in exchange for title

Post by learntogrow »

Jack FFR1846 wrote: Tue Apr 21, 2020 3:11 pm You know the right answer here. Your parents need to sell the house and take what they get, wind down the hobby of a business and rent a 1 bedroom apartment.

All these shell games of they sell to you and they live there and you collect no rent is going to bite you and bite you hard.

Seems a little harsh...

If he is in a position to be able help out his parents where it’s not financially draining to him is not only a potentially nice thing to do but a really nice deal in the future for him to own a property over double what he paid
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Carefreeap »

learntogrow wrote: Tue Apr 21, 2020 4:22 pm
Jack FFR1846 wrote: Tue Apr 21, 2020 3:11 pm You know the right answer here. Your parents need to sell the house and take what they get, wind down the hobby of a business and rent a 1 bedroom apartment.

All these shell games of they sell to you and they live there and you collect no rent is going to bite you and bite you hard.

Seems a little harsh...

If he is in a position to be able help out his parents where it’s not financially draining to him is not only a potentially nice thing to do but a really nice deal in the future for him to own a property over double what he paid
Hehehehe, oh is he going to pay for this "deal". Until you've dealt with financially dysfunctional parents there's no such thing as a "deal" with them. It's a black hole with no return other than heartache. And it's always your fault. BTDT.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by BarbBrooklyn »

You need to sit down with an Eldercare attorney and your parents. Doing a dodgey deal like this can have an impact on their ability to access programs like Medicaid for long term care if that is needed for either of them in the next 5 years.

A well-versed, specialized attorney can tell you the best way to do this. Life estate? Lady bird deed? Very state specific.
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afan
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Re: Parents want me to pay off their mortgage in exchange for title

Post by afan »

If you buy a house from your parents at a below market price, the difference between the market price and the purchase price will be treated as a gift. From the sound of it, your parents do not have to worry about using up their unified credit, so there would be no tax due. I don't know what happens to your basis, check with someone who does, but I would think it would be some combination of the purchase price and the parent's basis.
If you let them live there rent free, I believe you would be considered to be making annual gifts to them of the imputed rent. I don't know whether you could structure it as them prepaying their lifetime rent upfront. You would need a lawyer. The right amount of rent would depend on the market price for renting a house like theirs in their neighborhood. A lifetime can be a long time. The difference in between net present value of a stream of rental payments for lifetime and $370k could be a lot, either way.

Reverse mortgage might be another solution.

Agree that there are many other factors to consider in deciding whether to do this. Family issues for any siblings of yours, and other debts the parents may have, liability concerns once you own the house, your responsibility for upkeep, insurance and taxes once it belongs to you. Going forward, I would tend to agree that getting out of the house altogether would be a better solution than selling it to you at a discount. If the house is really worth $550k, then the parents would be in much better shape selling it for that price, then finding a less expensive place to live.

If your parents got out of the house, found a less expensive place to live and got regular jobs, they might end up in much better shape than they are now. With regular jobs they have income and do not need a big investment or need to take on more debt to keep a business running.
Is the mortgage the only debt? If the business is losing money then by all means get rid of it. Sell it if anyone will buy. Sell any inventory. If they can make ends meet for a few months, depending on the type of business, they make get a higher price for whatever they can sell once the stay at home orders are over.

Selling the house would let them pay off the mortgage and, if necessary, file for bankruptcy. That would get the rest of the debt, if any, paused and give them an opportunity to start fresh. It would not mean all the debt goes away, but they could well be in a better place than they are now.

You need to look at the overall situation and talk with an attorney.
Without a lot more information it is hard to have an opinion. Buying their house and letting them live there is not necessarily a good idea for anyone.
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NotWhoYouThink
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Re: Parents want me to pay off their mortgage in exchange for title

Post by NotWhoYouThink »

You can skip the elder care attorney, this is a bad deal and you know it.

Your parents have a house they can't afford, and they want you to pay to let them keep it.

They are offering to sell you a $550K house for $180K, but your basis will not be $180K, it will be something close to $550K, and they will need to document that they gave you a gift of $370K.

As stated below, they have decades of life expectancy left. If you really want to help them stay in place, you can start paying their mortgage payments and they can stay put. They'll need to get jobs, probably grocery stores are hiring in your area as they are in most places. They can pay their living expenses, you can pay their mortgage, taxes, and insurance. But make sure they don't take out more loans on the place.

Better would be, as stated above, for them to sell the house (the market isn't that bad now in most places), move somewhere they can afford, get jobs, and work as long as they can before collecting SS.
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mmmodem
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Re: Parents want me to pay off their mortgage in exchange for title

Post by mmmodem »

We were in a similar predicament. We kept it simple. My parents sold the home to us. We in turn rented it out to them. We had a real estate agent do the paperwork. Easiest 3% she ever made. She only took 1 commision and not 2 as buyer and seller since she never had to show the home. So that was a 3% savings for my parents. Home was listed on MLS and taken off immediately. Realtor insisted the property be sold at market price as to not raise any red flags. Property tax, insurance, HOA, maintenance, and repairs are on us as it should be for a landlord.

Not a tax expert. A primary home can have $250k gains without taxes back in 2012 as I recall so no tax implications for my parents. The only thing is my taxes became a little more complicated to do now that I have a rental.
veindoc
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Re: Parents want me to pay off their mortgage in exchange for title

Post by veindoc »

With no business how will your parents pay off the business debt and their expenses.

Don’t they need the proceeds of a home sale to do this?

Paying off the mortgage seem to solve only one part of the problem.
birnhamwood
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Re: Parents want me to pay off their mortgage in exchange for title

Post by birnhamwood »

Your parents in effect are offering you $370,000 to let them live in your house for life.

How is this not a good deal for you?
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Doom&Gloom
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Doom&Gloom »

While doing all the due diligence that has already been suggested, I would be looking for a Plan B. This has all the trappings of a money pit to me.
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neurosphere
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Re: Parents want me to pay off their mortgage in exchange for title

Post by neurosphere »

birnhamwood wrote: Tue Apr 21, 2020 4:48 pm Your parents in effect are offering you $370,000 to let them live in your house for life.

How is this not a good deal for you?
"For life" can be a long time, especially if it's a "second to die" life. And $370,00 can get eaten up faster than expected if OP also has to pay taxes, maintenance. Given parents financial issues, OP may also soon be required to pay ALL expenses, utilities, debts, perhaps to have parents avoid bankruptcy (which then muddies things up too).

Not to mention, the $370,000 is not there until much later, unless OP refinances and takes the cash out.

So, as others have mentioned, why not simply pay the parents mortgage payments. Much less risk. And maybe the OP will inherit the house later anyway, and still "get" the $370,000.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by EFF_fan81 »

mmmodem wrote: Tue Apr 21, 2020 4:41 pm We were in a similar predicament. We kept it simple. My parents sold the home to us. We in turn rented it out to them. We had a real estate agent do the paperwork. Easiest 3% she ever made. She only took 1 commision and not 2 as buyer and seller since she never had to show the home. So that was a 3% savings for my parents. Home was listed on MLS and taken off immediately. Realtor insisted the property be sold at market price as to not raise any red flags. Property tax, insurance, HOA, maintenance, and repairs are on us as it should be for a landlord.

Not a tax expert. A primary home can have $250k gains without taxes back in 2012 as I recall so no tax implications for my parents. The only thing is my taxes became a little more complicated to do now that I have a rental.
Unless this was a very cheap house, you got hosed by paying a less qualified real estate agent a 3% commission rather a more qualified attorney probably $5-10k (probably less, I'm just building in cushion assuming some due diligence and bespoke documents) on an hourly basis.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by softwaregeek »

I have dealt with financially distressed relatives before in a similar situation in the 2009 recession. I would help them financially but in no way get involved with ongoing money issues.
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mmmodem
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Re: Parents want me to pay off their mortgage in exchange for title

Post by mmmodem »

EFF_fan81 wrote: Tue Apr 21, 2020 5:29 pm
mmmodem wrote: Tue Apr 21, 2020 4:41 pm We were in a similar predicament. We kept it simple. My parents sold the home to us. We in turn rented it out to them. We had a real estate agent do the paperwork. Easiest 3% she ever made. She only took 1 commision and not 2 as buyer and seller since she never had to show the home. So that was a 3% savings for my parents. Home was listed on MLS and taken off immediately. Realtor insisted the property be sold at market price as to not raise any red flags. Property tax, insurance, HOA, maintenance, and repairs are on us as it should be for a landlord.

Not a tax expert. A primary home can have $250k gains without taxes back in 2012 as I recall so no tax implications for my parents. The only thing is my taxes became a little more complicated to do now that I have a rental.
Unless this was a very cheap house, you got hosed by paying a less qualified real estate agent a 3% commission rather a more qualified attorney probably $5-10k (probably less, I'm just building in cushion assuming some due diligence and bespoke documents) on an hourly basis.
Please explain. How does an attorney help for OP or my situation?
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Re: Parents want me to pay off their mortgage in exchange for title

Post by EFF_fan81 »

mmmodem wrote: Tue Apr 21, 2020 5:51 pm
EFF_fan81 wrote: Tue Apr 21, 2020 5:29 pm
mmmodem wrote: Tue Apr 21, 2020 4:41 pm We were in a similar predicament. We kept it simple. My parents sold the home to us. We in turn rented it out to them. We had a real estate agent do the paperwork. Easiest 3% she ever made. She only took 1 commision and not 2 as buyer and seller since she never had to show the home. So that was a 3% savings for my parents. Home was listed on MLS and taken off immediately. Realtor insisted the property be sold at market price as to not raise any red flags. Property tax, insurance, HOA, maintenance, and repairs are on us as it should be for a landlord.

Not a tax expert. A primary home can have $250k gains without taxes back in 2012 as I recall so no tax implications for my parents. The only thing is my taxes became a little more complicated to do now that I have a rental.
Unless this was a very cheap house, you got hosed by paying a less qualified real estate agent a 3% commission rather a more qualified attorney probably $5-10k (probably less, I'm just building in cushion assuming some due diligence and bespoke documents) on an hourly basis.
Please explain. How does an attorney help for OP or my situation?
If you are doing a private sale, there is no need for a real estate agent. Agents charge commission based on (presumably) hours and hours of times spent marketing the property and negotiating the sale. If you find the buyer yourself, it's much cheaper to have an attorney draw up the papers and an attorney with the appropriate specialty will be much more knowledgeable about that part of the process anyways.

OP didn't talk about engaging with an agent, but I would definitely recommend using an attorney instead of a real estate agent for a transaction like this anyways. I just specifically didn't recommend that before because I don't think he should do it at all.

Specific advice for the OP. Tell your parents to sell their house and save your $180k for helping them out with living expenses. If their business is failing, I doubt they have piles in their 401(k) and ... even if they have somewhere to live, they have to eat, too.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by willthrill81 »

Jack FFR1846 wrote: Tue Apr 21, 2020 3:11 pm You know the right answer here. Your parents need to sell the house and take what they get, wind down the hobby of a business and rent a 1 bedroom apartment.

All these shell games of they sell to you and they live there and you collect no rent is going to bite you and bite you hard.
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tvubpwcisla wrote: Tue Apr 21, 2020 3:40 pm I would never do business with family. It always ends badly.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Jags4186 »

So the only appropriate answer to the “offer” is no. Here’s what you can do. If you can afford it, simply offer to give your parents a monthly allowance that in conjunction with whatever income they have keeps the roof over their head. When your parents pass away they can make you whole when you inherit the house (if you have siblings, simply keep track of what you’ve given them and then subtract that from the top and split the remainder).

The other option is to tell your parents you cannot help financially but you are willing to help them pack their things, list and sell their house, and assist with the move to a 1 br apartment.
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geerhardusvos
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Re: Parents want me to pay off their mortgage in exchange for title

Post by geerhardusvos »

willthrill81 wrote: Tue Apr 21, 2020 6:01 pm
Jack FFR1846 wrote: Tue Apr 21, 2020 3:11 pm You know the right answer here. Your parents need to sell the house and take what they get, wind down the hobby of a business and rent a 1 bedroom apartment.

All these shell games of they sell to you and they live there and you collect no rent is going to bite you and bite you hard.
:thumbsup

It's not easy to make hard choices, but sometimes they need to be made. This is one of those times.
tvubpwcisla wrote: Tue Apr 21, 2020 3:40 pm I would never do business with family. It always ends badly.
+1000
+1

We’ve been through this shenanigans with my grandparents and I can speak from experience, regardless of how good relationships are currently, this will not end well. Just like we want our kids to own their decisions and life, so should our parents. Gifting them legal services seems like a good approach.

Draw your boundaries early and say no to this one. It’s what’s best for all parties, including your parents
VTSAX and chill
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Lee_WSP »

Lynx310650 wrote: Tue Apr 21, 2020 2:57 pm It's an interesting chance to own something "worth" over 500k and pay 180k for it, but at the same time I wouldn't be drawing any income off of it.

Wanted to get the opinions of this forum on such a deal.
You wouldn't own it. You'd own the tail end of a life estate. Usually a life estate is granted by the wealthy parents of a child as part of an estate plan.

This is just you giving them $180k.

https://en.wikipedia.org/wiki/Life_estate

In case you aren't familiar with the term.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by willthrill81 »

Lee_WSP wrote: Tue Apr 21, 2020 6:14 pm
Lynx310650 wrote: Tue Apr 21, 2020 2:57 pm It's an interesting chance to own something "worth" over 500k and pay 180k for it, but at the same time I wouldn't be drawing any income off of it.

Wanted to get the opinions of this forum on such a deal.
You wouldn't own it. You'd own the tail end of a life estate. Usually a life estate is granted by the wealthy parents of a child as part of an estate plan.

This is just you giving them $180k.

https://en.wikipedia.org/wiki/Life_estate

In case you aren't familiar with the term.
Yes.

I very much doubt that the OP would even consider this if it were not his/her parents.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Lee_WSP »

willthrill81 wrote: Tue Apr 21, 2020 6:16 pm
Lee_WSP wrote: Tue Apr 21, 2020 6:14 pm
Lynx310650 wrote: Tue Apr 21, 2020 2:57 pm It's an interesting chance to own something "worth" over 500k and pay 180k for it, but at the same time I wouldn't be drawing any income off of it.

Wanted to get the opinions of this forum on such a deal.
You wouldn't own it. You'd own the tail end of a life estate. Usually a life estate is granted by the wealthy parents of a child as part of an estate plan.

This is just you giving them $180k.

https://en.wikipedia.org/wiki/Life_estate

In case you aren't familiar with the term.
Yes.

I very much doubt that the OP would even consider this if it were not his/her parents.
I mean, if I had the 180 k to spare and were in the OP's shoes, I'd give it to my parents. But I don't, so I wouldn't. But if it wouldn't impact my financial goals, I'd go ahead and give them the money.

Another option would be to give them some money so they can wait out this virus and then they can sell when the market gets back on track.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Dottie57 »

learntogrow wrote: Tue Apr 21, 2020 4:22 pm
Jack FFR1846 wrote: Tue Apr 21, 2020 3:11 pm You know the right answer here. Your parents need to sell the house and take what they get, wind down the hobby of a business and rent a 1 bedroom apartment.

All these shell games of they sell to you and they live there and you collect no rent is going to bite you and bite you hard.

Seems a little harsh...

If he is in a position to be able help out his parents where it’s not financially draining to him is not only a potentially nice thing to do but a really nice deal in the future for him to own a property over double what he paid
I am all for OP helping his parents if it is feasible. However, I don’t think this is the way to do it. The parents need to minimize housing cost and they shouldn’t ask OP to help with this house - costs are likely high. Instead help them move, close down the business, get other jobs. It would help more if he could subsidize their expenses for several years to have a larger SS payout.
Last edited by Dottie57 on Tue Apr 21, 2020 6:26 pm, edited 1 time in total.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by willthrill81 »

Lee_WSP wrote: Tue Apr 21, 2020 6:22 pm
willthrill81 wrote: Tue Apr 21, 2020 6:16 pm
Lee_WSP wrote: Tue Apr 21, 2020 6:14 pm
Lynx310650 wrote: Tue Apr 21, 2020 2:57 pm It's an interesting chance to own something "worth" over 500k and pay 180k for it, but at the same time I wouldn't be drawing any income off of it.

Wanted to get the opinions of this forum on such a deal.
You wouldn't own it. You'd own the tail end of a life estate. Usually a life estate is granted by the wealthy parents of a child as part of an estate plan.

This is just you giving them $180k.

https://en.wikipedia.org/wiki/Life_estate

In case you aren't familiar with the term.
Yes.

I very much doubt that the OP would even consider this if it were not his/her parents.
I mean, if I had the 180 k to spare and were in the OP's shoes, I'd give it to my parents. But I don't, so I wouldn't. But if it wouldn't impact my financial goals, I'd go ahead and give them the money.

Another option would be to give them some money so they can wait out this virus and then they can sell when the market gets back on track.
Giving them a gift would probably* be fine and a horse of a different color. But loans, odd purchase arrangements like, etc. are a bad idea when family are involved.

*I say 'probably' because doing so might be enabling bad behavior to continue, behavior which will harm the parents and the OP in the future.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Lee_WSP »

learntogrow wrote: Tue Apr 21, 2020 4:22 pm not only a potentially nice thing to do but a really nice deal in the future for him to own a property over double what he paid
No it's not. If he's the only heir, it's probably going to OP in the end anyway, and if he has siblings, this is going to create acrimony. And he wouldn't even have the right to enter the property, collect any rent, etc etc.

As I've already said though, OP can of course just gift them some money to help them get to the end of the lockdown and then better decisions can be made at that time. Because I do agree that right now is probably a very bad time to be a seller.

edit:
There's a third option I didn't think of earlier. OP's parents can just utilize the mortgage relief and wait it out for up to a year and see if the market conditions improve.
Last edited by Lee_WSP on Tue Apr 21, 2020 6:47 pm, edited 1 time in total.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Katietsu »

This is a huge complicated mess that is much more than thinking you might be getting a good deal on a house. If you truly feel that this is a m

-What will happen to the business debt? If they plan to just not pay it but to give away significant home equity , I believe that could be illegal.
-If they have no proceeds from the house, does that just leave $1300 a month for expenses? It seems that would leave all home upkeep to you. This is likely to be tens of thousands of dollars if your parents have an average life expectancy. How would property taxes be affected by this move?
-Are you going be questioning their day to day spending or how they keep up the home as they age?
-Do you have enough financial room in your life to take on this risk? Your financial stability is the best safety net your parents have right now. Do not put your finances on shaky ground.
-Remember to consider opportunity costs on the $180k.

Should you want to explore this, work out all details first. You need a long term budget. This budget needs to account for personal expenses for parents such as Medicare costs and healthcare costs down the line. You need to make plans for home expenses such as a new roof and new A/C unit for the house. Everybody needs to have expectations clearly outlined. You need to tentatively plan for what happens when one of your parents passes away. The worst would be that this turns out helping neither of you financially and causing strain on your personal relationship.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Trader Joe »

Lynx310650 wrote: Tue Apr 21, 2020 2:57 pm I wrote about my parents' financial issues before, their small business is in absolutely dire straits now.

Their primary (and only) asset is their primary residence. Comparable sales were about $550k prior to the pandemic. They owe about $180k.

My parents made me the following proposition. I pay off the $180k for them, they hand over the title of the house in entirety to me. I let them live there rent free for the rest of their lives. We'll work out stuff like property tax, maintenance, etc.

I don't know what the legal (esp tax) implications of this would be, and I'm not sure if this would be an optimal financial move for either party. I could scrounge up the 180k in cash if need be and pay it off. It's an interesting chance to own something "worth" over 500k and pay 180k for it, but at the same time I wouldn't be drawing any income off of it.

Wanted to get the opinions of this forum on such a deal.
Sounds like a great plan to me. I would do this for my parents without any hesitation - at all.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by TallBoy29er »

PVW wrote: Tue Apr 21, 2020 4:03 pm
Lynx310650 wrote: Tue Apr 21, 2020 2:57 pm We'll work out stuff like property tax, maintenance, etc.
If you are considering this as an act of charity, you should assume that at some point you will need to pay for all housing associated costs.
I think that is a fair statement. That said, I think it is a road worth considering. They are their parents.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by AlphaLess »

Jack FFR1846 wrote: Tue Apr 21, 2020 3:11 pm You know the right answer here. Your parents need to sell the house and take what they get, wind down the hobby of a business and rent a 1 bedroom apartment.

All these shell games of they sell to you and they live there and you collect no rent is going to bite you and bite you hard.
solid advice.

many so-called 'small businesses' are just hobbies.

in fact, unless your small business grows into medium business (25+ employees), that small business is a hobby.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by willthrill81 »

AlphaLess wrote: Tue Apr 21, 2020 8:32 pm
Jack FFR1846 wrote: Tue Apr 21, 2020 3:11 pm You know the right answer here. Your parents need to sell the house and take what they get, wind down the hobby of a business and rent a 1 bedroom apartment.

All these shell games of they sell to you and they live there and you collect no rent is going to bite you and bite you hard.
solid advice.

many so-called 'small businesses' are just hobbies.

in fact, unless your small business grows into medium business (25+ employees), that small business is a hobby.
I've seen some businesses with under 25 employees that were remarkably profitable, but it's certainly true that most of them don't have a meaningfully positive financial impact on those who run/own them.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Parents want me to pay off their mortgage in exchange for title

Post by arcticpineapplecorp. »

I was gonna bring up the life estate but you all beat me to it.

I wasn't aware of your parents situation so I read up on it. In the post below you apologized for an earlier post which was missing details. So I assume(d) the post from 12/31/19 was more complete. The thing that struck me is this (from 12/31/19):
Their ONLY asset is their home, which by conservative similar sales data should be worth about $550k, with a mortgage of about $150k. Their plan is to sell the home in May when they close the business and pay off their debt. Being conservative, that should leave them with about $300k in cash when all is said and done.

source: viewtopic.php?f=2&t=299097&p=4922595#p4922595
see what struck me?

In Dec 2019 you said they have $150k mortgage to pay off...

but now, in this post, you're saying they owe $180k :moneybag

So which is it? I know you'd be getting a good deal buying a 550k house (supposedly, it's really only worth what someone pays you not what zillow says) for either $180k or $150k, but do they or do they not owe $180k? Did they increase their debt by $30k in 3 months?

If you want to say you'll buy it for $180k even though that's not what's left on the mortgage, just say so. But to see the mortgage payoff amount INCREASE 3 months after your last post raises more concerns.

The other thing that struck me is how they "plan to sell the home in May" (as of 12/31/19 post). So how did that plan change in three months? Is it because of covid-19 and they (or you) don't think you'll get $550k for it in May?

As was said, gifting a house for less than fair market value can have implications if one or both of them need medicaid for skilled care within 5 years from transfer of assets for less than fair market value.

a life estate may also have consequences for qualifying for medicaid as well. If you're going to go this route, I would not only see an attorney to write everything up, I'd make sure it's an elder law attorney and specify you want to know more about life estates and their implications for medicaid. Then if you go forward, they can help you write this up properly and understand all the implications. best of luck.
Last edited by arcticpineapplecorp. on Tue Apr 21, 2020 8:52 pm, edited 1 time in total.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by AlphaLess »

willthrill81 wrote: Tue Apr 21, 2020 8:40 pm I've seen some businesses with under 25 employees that were remarkably profitable, but it's certainly true that most of them don't have a meaningfully positive financial impact on those who run/own them.
Agreed. And all those people who are independent contractors who think they are businesses. That is just not true.

A W2 employee doing the same thing is just as much a business as an independent contractor.

Medium-sized businesses have been the growth of American economy for the past 30 years.

In order to be medium-sized business, a small business needs to graduate to that level.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by F150HD »

Millennial wrote: Tue Apr 21, 2020 3:16 pm One tax implication: if you get the house as a gift, you get their cost basis. If you buy it for the payoff, your basis will be $180k. If you inherit the house, your basis is the value at the time of their passing. If they've owned it a while, this could mean a $100k+ tax bill when you sell.
that came to my mind too, as did this article I read a week or few back:

https://www.marketwatch.com/story/read-this-before-gifting-your-home-to-your-kids-2017-03-30
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Re: Parents want me to pay off their mortgage in exchange for title

Post by TxAg »

Jack FFR1846 wrote: Tue Apr 21, 2020 3:11 pm You know the right answer here. Your parents need to sell the house and take what they get, wind down the hobby of a business and rent a 1 bedroom apartment.

All these shell games of they sell to you and they live there and you collect no rent is going to bite you and bite you hard.
Bingo!
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