5 Things is what we have been taught to believe: sharing equals caring. And that is accurate, for the most part. It’s a good idea to think through the repercussions before taking the biggest step in sharing, which is adding someone to the deed to your house. It’s critical to realize that adding someone to your deed gives them the same “bundle of rights” that you have as the owner of the property, including control, enjoyment, possession, exclusion, and disposition. Speak with your mortgage lender and an estate attorney before adding a loved one to your deed to make sure you understand your rights and decide whether this is the correct decision for you
You can’t take it back:
A person you add to the deed may receive all or any of your ownership interests. Once completed, it cannot be undone without the additional party’s permission to be withdrawn from the deed. He or she may sell their portion of the land, demolish the building, or even take out a loan against it. Additionally, there may be situations in which you are helpless.
The person you transfer your interest to will have complete power over that section and may even be able to compel a sale of the property if you simply transfer a portion of your interest. You need to obtain the extra person’s consent before refinancing or selling your house. This may result in expensive and time-consuming legal disputes that keep the property inaccessible for years. Before you sign on the dotted line, be sure you are well aware of the ramifications and repercussions.
You need permission from the lender:
Adding individuals to a deed on a house when there is an outstanding mortgage is not prohibited by law. Lenders for mortgages are experienced with and often deal with deed transfers. A “due-on-sale clause,” which most lenders include, allows them to call in the loan in the event that the house is sold or the deed is transferred. Your home becomes partially yours when you “deed” it to someone, and this might trigger the “due-on-sale” provision.
It is essential that you comprehend the regulations that apply to your specific circumstance. Additionally, before adding someone to the deed, you need have their consent from your mortgage lender.
Exposure to additional liability:
Imagine that you choose to include your brother in the deed. The IRS, his creditors, or his ex-spouse may take your house, or at least his share of it, if he doesn’t pay taxes and is hit with a tax lien, has credit issues, or gets into a contentious divorce. The party owing you money in that case may file a lien on your property, try to compel a sale in order to pay the obligation, or seize the property and keep you from selling.If you ever decide to sell your house, including someone on the deed may result in income tax obligations.
IRS gift taxes may apply:
The IRS considers adding someone to your deed to be a gift. That individual then becomes subject to gift-related IRS requirements.The key lesson from this is that, in order to be sure you understand all of the ramifications and avoid any surprises later on, you should make sure you speak with a tax attorney or Certified Public Accountant (CPA) before adding someone to your deed. If you do not exercise due diligence, your good intentions may come at a high cost.
It can get complicated
Including someone in the activity carries a lot of unintended consequences and dangers. Recall that you no longer become the only owner but rather a part owner. This modification may affect your ability to refinance or sell. Medicaid eligibility may also be negatively impacted by asset transfers for elderly homeowners who are getting close to retirement.
It’s also important to remember that merely include someone in the deed does not hold them accountable for the debt. The other person retains ownership rights, and you are still fully liable for repayment until the original loan arrangement is changed.