Dear MarketWatch,
A few years ago, we moved my father-in-law, who has heart issues and early dementia, from his house in a large metropolitan area to our smaller community four hours away. He was able to sell his house there for much more than the house he bought in our community, however, the closing of his former house was delayed, so I ended up co-signing on his mortgage, which he paid off about a week later.
About six months ago, my wife and I refinanced our house and discovered that I was on the title of my father-in-law’s house, with 0% share. We needed to get proof of insurance for his house, and found out I was also listed on his insurance policy. The agent indicated I should consider keeping it that way, since it may come in helpful should he become incapacitated.
My father-in-law has in his will that the house will be sold and the proceeds divided between his grandchildren, so I’m wondering if me being on the title could cause issues or have tax implications for me. Should I take myself off the title and, if so, how would I go about doing that?
Thanks,
Concerned Son-in-Law
‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Jacob Passy at TheBigMove@marketwatch.com.
Dear Son-in-Law,
Your father-in-law is very lucky to have you as a son-in-law, and it’s admirable that you stepped in — seemingly on very short notice — to ensure he could buy his home. It’s clear though that in the rush to finalize the deal, some miscommunication occurred.
Before I make my recommendations, I wanted to take a moment to clarify the difference between a home’s deed and the title. These terms are used interchangeably often in casual conversation when talking about buying or owning a home, but they are not exactly synonyms.
A deed is a physical, legal document that outlines who owns a property; whereas, the title is the concept that you own the property. The deed must be signed by the buyer and seller, and acts as proof of your title to the home.
It is indeed possible to co-sign on a mortgage without being listed on the property’s deed, and it seems as though that’s what you intended to happen. Anyone who’s purchased a home is familiar with the mountains of paperwork that they have to sign to close the deal. My guess is you inadvertently signed the deed thinking it was part of the mortgage paperwork.
“‘A deed is a physical, legal document that outlines who owns a property; whereas, the title is the concept that you own the property.’”
Whatever the case, what’s done is done. The ramifications of this mishap will depend in large part on how the deed is worded. There are various types of deeds. One common form is joint tenancy with right of survivorship — with this deed, the co-owners each have rights to an equal share of the property. With joint tenancy, when one of the owners dies, their share is divided among the remaining owners.
Because your share is 0%, I believe your deed likely has a “tenancy in common” structure. This form of a deed allows for unequal ownership. Often, lenders won’t allow that structure because they want everyone who is listed on the mortgage to have an equal stake in the loan to ensure its repayment, but perhaps your father-in-law’s lender was more lenient given the circumstances.
Tenancy in common is a popular strategy, and in some states is the default form of a deed for unmarried individuals purchasing a home together. That said, I can’t say I’ve heard of a scenario in which one of the owners technically had a 0% stake.
Unlike a joint tenancy, with a tenancy in common the inheritance process works differently. When one owner passes, their share goes to their heirs rather than their co-owner, depending on how it’s stipulated in the will. Put simply, your name being on the deed won’t prevent the home from going to your father-in-law’s heirs as he wishes, though you might be needed to sign any paperwork to sell the home should the time come after he dies.
“The way the deed is written determines how ownership of the property transfers to heirs.”
Nevertheless, there are many reasons why you may wish to consider taking yourself off the deed. Because you are technically a co-owner of the home in writing, debtors could theoretically go after your share of the home’s value to recoup the money they are owed if you are negligent with your payments. Though, again, the 0% stake makes this a bit unusual.
At the very least, the current arrangement is needlessly complicated. Given that your father-in-law has dementia, his children should sort out designating someone as his power of attorney or conservator, if they have not done so already. This person could then be charged with dealing with insurance companies and managing his financial affairs, rather than you.
The simplest route to take to resolve this issue might be to go through the quitclaim process. This varies from state to state, but generally involves filling out requisite paperwork, signing it and recording it with whatever office is responsible for recording deeds where your father-in-law lives.
That said, your family may want to consider whether it would be worthwhile to put the home into a living trust. There are benefits to doing so, because it can allow the home to bypass the probate process, which can take a long time. There could also be tax advantages, as well as benefits in terms of helping your father-in-law to qualify for government aid for his long-term care.
Because the deed has already been inadvertently messed up once, you all should consult with an attorney who can walk you through the proper steps to rectify this and advise you on the best options for holding the property, with your father’s future and your family’s inheritance in mind. I hope that these next steps go more smoothly for you all this time around.
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