Libby has been particularly frustrated about something lately and has asked me to share it with you. She wants very much for people to avoid a particular mistake that can cause them all kinds of problems regarding a real estate thing.
We have seen people make this mistake many times over the course of our long real estate career and since we do care very much for the people we work with, it is painful for us. It is particularly painful to Libby who has been seeing people doing this much more recently for some reason.
First of all, we have to make the usual disclaimer here. We are not attorneys or tax professionals. We don’t give out legal or tax advice. However, what we are going to talk about is what we have seen actually happen over the years. We are reporting so to speak.
What are grant deeds?
So let’s say you own a house. You have a deed that shows who owns the house. Or another way of saying it who has title to the house. If it is more than one person, that will be shown on the deed and title. If there is a mortgage on the house, the mortgage will state who is responsible for paying the mortgage.
Now we all know that things change in people’s lives as time goes by. For example, a married couple decides to get a divorce in California. In this case, there is very little or no equity in the house. In other words, if the house was sold, they would not make any money on it.
The soon to be ex-wife does not want to live there anymore. She is advised by some well-meaning friends that she can “get out from under the house” by deeding her ownership interest to her soon to be ex-husband and she can move out and wash her hands of ties to the house and start fresh. The soon to be ex-husband agrees that he will stay and live in the house and she deeds her ownership interest in the property via a “grant deed”.
So now she has no title ownership interest in the house. What she has not thought about though is that she is still responsible for the unpaid mortgage. If her ex-husband stops making payments on the mortgage, the mortgage company still can come after her to pay. I think you can see how this could get really ugly and the ex-wife could end up with serious financial problems as well as bad credit.
Even if there is equity in the home when the house is going to be sold there can be title issues if the change of ownership was not done by an attorney or ordered by court action, etc.
The mortgage note holder will still want their funds due on the Note regardless of who the title ownership is under. Plus, there could be tax repercussions in the above scenarios.
This has been one example, with an additional twist of how “deeding ownership” can be a big mistake. In addition, there are almost endless scenarios where people do the “deed it over” thing. We don’t have space to even scratch the surface here. Our purpose has been to get you thinking about how serious this can be. We truly hope we have succeeded.
Please remember to always consult an attorney and or a tax/financial professional prior to deeding your ownership on a property to other(s) or if someone wants to deed a property over to you.