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Ask Barbara Your Own Question

Barbara
Barbara, Tax Preparer
Category: Tax
Satisfied Customers: 947
Experience:  Tax Preparer for 16 years; 25+ years experience as a real estate/corporate paralegal.
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I need a Real Estate/ Tax Attorney advice. I fell in love with

Customer Question

I need a Real Estate/ Tax Attorney advice. I fell in love with a particular home for sale. I was unable to qualify for the loan because of a previous forclosure. (2yrs 10 months ago) My boyfriend was able to quailfy with his credit so he purchased it with me giving 75k down. He just signed over the grant deed to me. I still have not recorded it. I am not sure how to fill out the Documentary Transfer Tax Affidavit. I am trying to avoid tax consequences for both of us. What do I mark off? Which would be the best way to proceed?
Thank you,
Betty Nunez (State of California)
Submitted: 9 months ago.
Category: Tax
Expert:  Lev replied 9 months ago.

Lev :

Hi and welcome to our site!
The only possible federal tax consequences would be gift taxes if there is no money transfer between you and your boyfriend.
However - if there are some money transfer - there might be a sale transaction as well.
.
Documentary Transfer Tax Affidavit is the basis for Documentary Transfer Tax imposed by the County and/or City for the transfer of property. That is a local tax - not federal or state tax - so fro specific requirements - you need to verify with your local authorities.
So depending on your location - the transfer tax might be paid by the seller or by the buyer or both.
Generally - the Transfer Tax is $1.10 per $1,000 of the sales price - but you may use this calculator to verify exact amount - http://www.vivaescrow.com/for-your-convenience/faq/california-documentary-transfer-tax/tax-calculator

Lev :

Indeed - there are certain exemption from the Transfer tax.
You may review some of such exemptions in this publication - http://www.saclaw.lib.ca.us/uploads/files/DocTransTax.pdf
However based on your information - I do not think you may claim any exemption on the affidavit. So - the transfer of the title from your boyfriend to you will be subject of the Transfer Tax.

Customer: replied 9 months ago.


Hi Lev,


I am now more confused. There is no sale. Who are the local authorities I need to ask? So far everyone has said contact a lawyer, will not give me advice. You state the transfer tax maybe paid by th seller or buyer. There is neither. Do I have to pay transfer tax? I am trying to avoid paying tax, is there a way?

Expert:  Lev replied 8 months ago.

Sorry for delay in responding as that was based on technical issues.
Let consider facts.
The property was purchased by your boyfriend - he owns that property and the title is in his name.
The money you provided might be considered as a loan.

Now - you want the property to be transferred to you - that means the change of the ownership - which is generally subject of the transfer tax.
Most common ways to transfer the ownership from one person to another are sale, inheritance and gift. Because you stated - there is no sale - I might assume that is a gift.
Putting aside possible federal gift tax consequences (we may address that later after we are clear with transfer tax issue) - the main question is - if the property is transferred as a gift - is such transfer subject of the transfer tax - and the answer is no if exemption could be claimed.

.

Who are the local authorities I need to ask?
Transfer taxes are collected by counties - so in this case local authorities are your county administration where the property is located.

You state the transfer tax maybe paid by the seller or buyer. There is neither. Do I have to pay transfer tax?
Yes - transfer tax will be due. I referred to the seller or buyer in common sense - we may say - the transferor and transferee to be more précised - but that doesn't change the situation - either you or your boyfriend will be required to pay the transfer tax BEFORE the title could be issued in your name unless you claim a valid exemption.

.

I am trying to avoid paying tax, is there a way?
If my above assumption is correct - and the property is transferred as a gift - you may claim an exemption from the transfer tax
H. "This is a bonafide gift and the grantor received nothing in return. (R&T Code 11911.)"
You may select that option on the Documentary Transfer Tax Affidavit if such option is available.
If not available - every county has different form - you may choose "Other" - and add information above into space on the right.
The actual statute of the California Revenue and Taxation code is here - http://www.leginfo.ca.gov/cgi-bin/displaycode?section=rtc&group=11001-12000&file=11911-11913
However - to claim any specific exemption - we need to reference your county ordinance code corresponding with that state statute.

Expert:  Barbara replied 8 months ago.

A different expert here. Welcome. My name is Barbara, and I have over 25 years of experience as a real estate paralegal and 16 years of experience as a tax preparer.

 

I would like to provide you with some additional information regarding your question. In your initial question, you stated that your boyfriend obtained the loan to purchase the property. If you are not on the mortgage, he cannot simply transfer title of the property to you without the express approval of the lender. The majority of lenders consider this to be a default of the loan. I would caution you to read the mortgage document carefully.

 

As to the documentary stamp tax, this was most likely collected at closing when your boyfriend purchased the property. If he is going to transfer title to you for no consideration, there would be no additional documentary stamp tax due. You would use a consideration amount of less than $100 on the documentary stamp tax affidavit, and no tax will be due.

 

Please let me know if you require further information or clarification.

 

Thank you and best regards,

Barb

Customer: replied 8 months ago.


Thank you Barbara,


I understand the bank would not like to see me on title and him on the loan, is that what you are stating? What would be the eaisiest way to proceed what with I am trying to do? I don't want him to suffer any consequences either. Is it go to an escrow company, new title and loan and purchase, and pay new taxes?


 


 


 


Is there an easier way less expensive? (I could not make sense of the other answers, I am a simple person, need easy simple answers)


 


I wne to the county recorders office thinking I could just record a new grant deed from him to me but, recieved paper work they would not help me fill out. Even if I paid. Prelimary change of ownership along with a Documentary Transfer of Tax Affidavit. Did not know what to make to avoid taxes. Should I go to a paralegal? I am a poor reader. Ane I don't understand what I am doing? Want to double check I am doing the right thing.


 


Thank you Barbara for your help,


 


Betty

Expert:  Barbara replied 8 months ago.

Hi, Betty.

 

The bank is not going to allow your boyfriend to transfer title to you if his name is on the mortgage. Basically, he would be giving you title to property on which he owes money (a mortgage). In most instances, banks do not approve of even adding people to title that are not on the mortgage. If the bank approves, perhaps your name could be added to the deed for now, and then at some future point, you could refinance the mortgage on your own with the deed in your name only.

 

As to the county recorder's office, it's been my experience that most of them are not very helpful for whatever reason. My best advice would be to not record the deed at this time until you investigate what options you have that will not put your boyfriend or yourself in jeopardy.

 

Best regards,

Barb

Expert:  Barbara replied 8 months ago.

Hi, Betty.

 

Just a short note to follow up with you to see if you need any additional assistance or information. If so, please come back to me here, and I will be happy to assist you. If not, please take a moment to rate my answer to you since that is an important part of being an expert on JustAnswer, and I strive for excellence.

 

Thank you and best regards,

Barb

Customer: replied 8 months ago.

Thank you again. But, what are my options? I want to take out a loan now and put the house in only my name. Do you know if I can just add me to title and then refinance? He wants to buy a home of his own so, he doesn't want to be on title either.

Expert:  Lev replied 8 months ago.
Hi again - If the property has a mortgage - that means the property is used as a collateral - and to transfer the title to your own name - the property must be refinanced.
You may not transfer the title to your name - and refinance after that - these two transactions must be made at the same time.
The first step should be to contact a mortgage broker and get pre-approval for refinancing.
Then - you will provide all documents about your income to that broker - and they issue the new mortgage into your name.
On closing date - that your mortgage will pay off the mortgage of your boyfriend - and he will be released from mortgage obligations.
Then - all documents will be sent to country for title transfer - the broker will be able to help you to prepare the Documentary Transfer Tax Affidavit which must be included.
That might take a couple of weeks - and the deed will be in your name.

As an alternative - you may break the transaction in several separate steps - but that might take longer. As you suggested - your boyfriend may add you to the title - but because the property is used as a collateral for the mortgage - that is subject of approval of the mortgage holder. Normally - banks require refinancing for any title changes - in this case - in both names - so that might trigger additional cost.
So - I suggest to contact a mortgage broker and try to complete the transfer in one single step.
Let me know if you need any clarification this matter.
Expert:  Barbara replied 8 months ago.

Hi, Betty.

 

Contrary to what the other expert has advised, in your instance, you ARE NOT refinancing the mortgage on the property because you do not currently own the property, and you DO NOT need to contact a mortgage broker and get pre-approval for financing. You can directly contact any lender (bank, credit union, etc.) and apply for a loan to "purchase" the property from your boyfriend. Once you are approved for financing, a closing will take place and the transfer of title and the mortgage will be in your name only. Your boyfriend can then purchase his own property.

 

Please let me know if I can assist you further.

 

Thank you and best regards,

Barb

Expert:  Lev replied 8 months ago.
Please let me respectfully disagree with the proposed approach.
While you definitely may do that - the "purchase" transaction of the property from your boyfriend - when the purchase price will be listed on documents - will unfortunately trigger the Transfer Tax.
In this case - you will not be able to claim the bonafide gift exemption.
Only gifted properties qualify for this exemption.

If you put $100 as a sale price as it also was advised by Barbara - the bank will not give you a "purchase" mortgage for the full price unless you apply for refinancing.
So the transfer in your situations a little more complicated than Barbara is trying to present it...
Expert:  Barbara replied 8 months ago.

Hi, Betty.

 

Just to clarify, my initial response to you was as it pertained to your boyfriend transferring title to you and how the doc stamp tax would work in that regard.

 

My most recent response was as it pertained to you taking title to the property and getting a loan on your own.

 

Two entirely different sets of circumstances of which I am aware, and my answers to you were in response to the separate issues you raised.

 

Thank you and best regards,

Barb

 

 

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