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Adding Someone to Title? Think Again!

In the course of our real estate law practice, we often are asked to help a homeowner "add someone to title."  At other times, we encounter a prospective client that has already "added someone to title." While preparing and recording the paperwork to do this is relatively straightforward, we almost always end up recommending that the homeowner not proceed, because there can be serious negative consequences.  As for those that have already done so, we sometimes have to represent the client in extended court proceedings in order to try to undo the damage that has been done.

Among the negative consequences is incurring gift taxes.  "Adding someone to title" makes the grantee a part owner of the property, and therefore receives a gift to the extent they have not paid fair market value for the partial interest in the real estate. For the grantee, that person takes title with an artificially low "tax basis," which sets them up for potentially large capital gains tax upon the sale of the property. Of course, with careful planning, some of these tax consquences can be mitigated.

Beyond the potential of negative tax consequences for both sides, "adding someone to title" presents a risk that the mortgage lender can deem the mortgage loan immediately due and payable.  That is because most home loan agreements include a "due on transfer" (aka "due on sale") clause, meaning that transfers of interests in the mortgaged property trigger the lendler's right to payment in full.

The above discussion covers just the "tip of the iceburg" when it comes to potential negative consquences from adding or removing parties from title.  It is therefore highly recommended that you consult with a competent real estate attorney before taking this step.  

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Lawrence R. Jensen & Associates
95 S. Market St.
Ste. 550
San Jose, CA 95113

Phone: 408-465-0293
Fax: 408-899-2403
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