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Hello everyone. New member here, but lurked for some time. Thanks for having me.

I am intending on purchasing my Mother's home. I will be paying full cash for the fair market value. No mortgage. I'm not interested at all in financing, regardless of others views on financing. It has been challenging to find good advice/information online, because sites seems to focus on one or the other (buying a house in cash, and buying a house from a parent), but not both together.

The home is in Orange County, NY. My mother is the second owner of the house, and I'm 100% sure there are no title or lein, etc. issues.

So, what are the steps? And what are the costs involve? Are there good sites that you know of that you can direct me to?

- We would not be using realtors (both for me as the buyer and her as the seller)
- What are the closing costs involved?
- I imagine there will be paperwork. Do I have to hire an attorney to tell me what paperwork to use (ex. contract) and also to tell me what paperwork needs to be filed with the governing bodies? Or is there another professional that does this? I imagine a real estate attorney will be expensive.

I'm a novice at this whole process, but trying to learn as much as I can. Thank you greatly for your insights.
 

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You and your mother should each hire separate attorneys for approximately $700-2000 each. They charge a flat fee, not a percentage.

The transfer tax is probably charged by the county, and should be less than 1%.

There are no closing costs.

The practice is going to vary based on region, but I would approach a "title company" or a "title and escrow company."  Just ask your friends where they conducted their real estate closing, and ask if they were happy with the professionals working there.  An outfit like this will prepare all the appropriate documents, record the deed, transfer funds, etc.

Actually the tax I was thinking of is a state tax, not a county tax. It's 0.04% of the purchase price.

http://www.anytimeestimate.com/TITLE_INSURANCE/ny-title-insuranc...

Also, you should know there have been changes to the STAR exemption, which mostly suck: https://www.tax.ny.gov/pit/property/star/

If your mother has substantial gains, she's going to have to declare all of it on her income taxes (both federal and state) and she'll probably need substantial documentation from at least one appraiser to prove the fair market value, since this is not an arms-length transaction. This is stuff the lawyers should be able to go over with you.

Why are you buying the house? If she's going to have to pay a lot of capital gains taxes, it's probably not a good idea. You can rent it from her for well under market value for a long time without being detected. Then she can will you the house, and when she dies, you get a step-up in basis. Your new basis will be whatever it gets appraised for when you handle her estate.

does she live there currently? will she continue to live there? you could gift her some money, let her pay off the house, and add you to the title.

Talk to a local closing company. They can walk you through the process

Tresh said:   does she live there currently? will she continue to live there? you could gift her some money, let her pay off the house, and add you to the title.
Adding a child to the title is one of the most common mistakes that people make and rarely the best route to go.  Please consult your estate planner, attorney and tax advisor before you do this.

Barnegat said:   Hello everyone. New member here, but lurked for some time. Thanks for having me.

I am intending on purchasing my Mother's home. I will be paying full cash for the fair market value. No mortgage. I'm not interested at all in financing, regardless of others views on financing. It has been challenging to find good advice/information online, because sites seems to focus on one or the other (buying a house in cash, and buying a house from a parent), but not both together.

The home is in Orange County, NY. My mother is the second owner of the house, and I'm 100% sure there are no title or lein, etc. issues.

So, what are the steps? And what are the costs involve? Are there good sites that you know of that you can direct me to?

- We would not be using realtors (both for me as the buyer and her as the seller)
- What are the closing costs involved?
- I imagine there will be paperwork. Do I have to hire an attorney to tell me what paperwork to use (ex. contract) and also to tell me what paperwork needs to be filed with the governing bodies? Or is there another professional that does this? I imagine a real estate attorney will be expensive.

I'm a novice at this whole process, but trying to learn as much as I can. Thank you greatly for your insights.

  

Best advice - call a closing company and ask them how much it cost.  We just did it recently where i transferred my half of a property to my brother.   We had a small HELOC balance which we paid off separately, and half the value of house wasn't too large, so i just took a check outside the closing etc.  So all the closing was for .. deed transfer - forgot the exact name, just singing over some document - i think the lawyer/closer charged $500-$600 or so.

Remember - you're not doing a full closing like title search, financing etc - so someone to do the actual transfer will be very cheap.


 

DTASFAB said:   If your mother has substantial gains, she's going to have to declare all of it on her income taxes (both federal and state) and she'll probably need substantial documentation from at least one appraiser to prove the fair market value, since this is not an arms-length transaction. This is stuff the lawyers should be able to go over with you.

Why are you buying the house? If she's going to have to pay a lot of capital gains taxes, it's probably not a good idea. You can rent it from her for well under market value for a long time without being detected. Then she can will you the house, and when she dies, you get a step-up in basis. Your new basis will be whatever it gets appraised for when you handle her estate.

  
I second this.
 

FYI, Title Forward is a new-age title company with lower rates and better service. Same ownership as Redfin. Used them recently and had a great experience compared to the last two title companies I've used (one local which was ok, the other was Entitle Direct which was horrible).

The last thing OP is concerned about is title insurance. He should not spend a penny on any title company to do anything. It's completely unnecessary and a total waste of money.

He and his mother should get together with their estate planner and tax advisers and determine if the house should be transferred/sold now or at a later date. If the answer to that question, after receiving proper professional advice for their specific financial situation, is to transfer the house now, the best way to then proceed is to hire a RE attorney who will charge a flat fee.

As for the transfer/sale itself, the only transfer tax or fee that will be due (other than RE attorney fees) will be the 0.4% NY state transfer tax.

No title insurance, no mortgage/lender tax, no closing costs, no RE agent fees, nothing.

DTASFAB said:   The last thing OP is concerned about is title insurance. He should not spend a penny on any title company to do anything. It's completely unnecessary and a total waste of money.

He and his mother should get together with their estate planner and tax advisers and determine if the house should be transferred/sold now or at a later date. If the answer to that question, after receiving proper professional advice for their specific financial situation, is to transfer the house now, the best way to then proceed is to hire a RE attorney who will charge a flat fee.

As for the transfer/sale itself, the only transfer tax or fee that will be due (other than RE attorney fees) will be the 0.4% NY state transfer tax.

No title insurance, no mortgage/lender tax, no closing costs, no RE agent fees, nothing.

This assumes his mother doesn't need the money for her new house, which is likely the case.

I'm not familiar with NY, but in PA the real estate transfer tax is 0% for family transactions. 

DTASFAB said:   The last thing OP is concerned about is title insurance. He should not spend a penny on any title company to do anything. It's completely unnecessary and a total waste of money...
 

What a "title company" does for a client is going to vary considerably in different areas.  Just about every real estate transaction I've ever closed has been consummated around a conference table in the offices of a "title company."  Just because he uses their clerks to put together the documentation, record the deed, and anything else necessary to effect the transfer doesn't mean he's buying title insurance.  These people are experienced at property transfers; let the professionals handle it.

 

why in the world would u be paying cash for the full market price for your mother's house?

dcwilbur said:   
DTASFAB said:   The last thing OP is concerned about is title insurance. He should not spend a penny on any title company to do anything. It's completely unnecessary and a total waste of money...
What a "title company" does for a client is going to vary considerably in different areas.  Just about every real estate transaction I've ever closed has been consummated around a conference table in the offices of a "title company."  Just because he uses their clerks to put together the documentation, record the deed, and anything else necessary to effect the transfer doesn't mean he's buying title insurance.  These people are experienced at property transfers; let the professionals handle it.

 

  In NY it happens in lawyers' offices.  I said he should let professionals handle it.

UncleJr said:   why in the world would u be paying cash for the full market price for your mother's house?
  Mother needs the money and he needs the house.

Thank you all very much for your helpful information. This is exactly what I was looking for

I too, read that a "Title company" could provide the correct paperwork, do filings, etc. (without actually selling you a Title policy).

But DTASFAB, you recommend a Real Estate Attorney. But only one that charges a flat fee. Do most Real Estate Attorney's offer this type of service for a flat fee? Or do I have to call around to various attorneys in hopes of finding one that does?

And you mentioned that both my Mother and me should get separate attorneys? Would one attorney for both of us not work well?

dcvilbur, your advice is to use a Title Company. I was thinking of having a simply "title search" done (I guess it's called getting an abstract of title). But NOT to have a title policy. I read this may cost $100-$150 or so. But I wonder if I contact a company to do this, if they will also offer the other services you mentioned, like providing contracts, filing the records, etc.

I guess I wonder if I have to hire an outside professional of some sort (which it appears I should based on the comments), should it be a Real Estate Attorney or a professional with a Title Search company?

BostonOne said:   
UncleJr said:   why in the world would u be paying cash for the full market price for your mother's house?
  Mother needs the money and he needs the house.

if he needs a house he can buy another one since he's paying full market prices.
if she needs money, she can borrow against the house.
so many other better alternatives than doing this.

Barnegat said:   Thank you all very much for your helpful information. This is exactly what I was looking for

I too, read that a "Title company" could provide the correct paperwork, do filings, etc. (without actually selling you a Title policy).

But DTASFAB, you recommend a Real Estate Attorney. But only one that charges a flat fee. Do most Real Estate Attorney's offer this type of service for a flat fee? Or do I have to call around to various attorneys in hopes of finding one that does?

And you mentioned that both my Mother and me should get separate attorneys? Would one attorney for both of us not work well?

dcvilbur, your advice is to use a Title Company. I was thinking of having a simply "title search" done (I guess it's called getting an abstract of title). But NOT to have a title policy. I read this may cost $100-$150 or so. But I wonder if I contact a company to do this, if they will also offer the other services you mentioned, like providing contracts, filing the records, etc.

I guess I wonder if I have to hire an outside professional of some sort (which it appears I should based on the comments), should it be a Real Estate Attorney or a professional with a Title Search company?

The vast majority of RE lawyers in the area charge a flat fee.  Some are cheap and desperate for business and send out advertisements stating their fee is only in the $700-750 range.  Anything above $1200-1500 is pricey, but if you find someone charging more like $2000 and you're comfortable with that person, it wouldn't necessarily be the worst thing to spend $2000.

I'm really not sure if you and your mother would need separate lawyers, but since it's not an arms-length deal, it might be better to avoid creating the appearance of any conflict of interest with the lawyer(s).  I think you should call a few RE lawyers in the area for a brief (3-10 minute) telephone consult in which you inquire about their fee and explain a little to the lawyer about the nature of the transaction you'd like to execute.  Then the lawyer can better advise you whether one lawyer representing both parties will be sufficient or if you'll each need a separate lawyer.

You and your mother should absolutely consult tax professionals about the ramifications of selling now as opposed to selling later or not at all.  If you don't know exactly what you're doing and how it might hurt you as well as how it might benefit you, you shouldn't do anything.

UncleJr said:   
BostonOne said:   
UncleJr said:   why in the world would u be paying cash for the full market price for your mother's house?
  Mother needs the money and he needs the house.

if he needs a house he can buy another one since he's paying full market prices.
if she needs money, she can borrow against the house.
so many other better alternatives than doing this.

  Exactly... I'm very curious as to the motivation.

The motivation is that I want to purchase my Mom's house, which is the house I grew up in and live in it. She's elderly and may live with me or may decide to get an apartment or move to a active senior facility.

I'm sure the price will be at some discount from Fair Market Value, but not an obscene discount. She is aware of the gift tax ramifications for any discount offered.

As far as why cash? Because I thankfully have the means and it saves from paying the loan interest for decades (as I plan on staying in the home in perpetuity).

And quite frankly, I'm simple in my approach to things and don't fair well with complicated financial matters (unfortunately, but that's just how my mind works)

So I again thank you all very much, as I read this forum and know how astute you all are.

DTASFAB said:   Why are you buying the house? If she's going to have to pay a lot of capital gains taxes, it's probably not a good idea. You can rent it from her for well under market value for a long time without being detected. Then she can will you the house, and when she dies, you get a step-up in basis. Your new basis will be whatever it gets appraised for when you handle her estate.
  OP: Please answer this question!

Barnegat said:   The motivation is that I want to purchase my Mom's house, which is the house I grew up in and live in it. She's elderly and may live with me or may decide to get an apartment or move to a active senior facility.

I'm sure the price will be at some discount from Fair Market Value, but not an obscene discount. She is aware of the gift tax ramifications for any discount offered.

As far as why cash? Because I thankfully have the means and it saves from paying the loan interest for decades (as I plan on staying in the home in perpetuity).

And quite frankly, I'm simple in my approach to things and don't fair well with complicated financial matters (unfortunately, but that's just how my mind works)

So I again thank you all very much, as I read this forum and know how astute you all are.

  OK, I understand the motivation.  The concern here is that you don't actually need to buy the house for you to live in it, or for you to live in it with your mother.  If your mother sells the house to you, there are large tax implications (the profit is taxable).  If she doesn't sell the house to you, but you just inherit it when she passes away, then you can avoid most or all of those taxes, so long as your mother's total estate is <$5 million.

The tax difference could easily be tens of thousands of dollars. 

A consultation with an elder law or estate law attorney would be beneficial to see if setting up a trust to aid in the transfer of her assets is a preferable option to an outright sale.

ok, i understand u want to keep the house u grew up in, and paying her for it is the "right" thing to do. but it's not the smartest, tax-wise.

u need to talk to your mom about it, and find out what her intentions are. Like what she plans to do with the house, are there other family members that she may want to give it to?

if you are an only child and she already plans to bequest the house to u, u can offer to take care of everything else financially for her. so by not buying it now, u get a stepped up basis later.

Other important info is whether the house appreciated more than $250,000. If not, then she gets an exemption.

Also, will she need Medicaid? AFAIK, she can own a house and still qualify.

Have you considered a trust (both revocable and irrevocable)?

There are a lot of factors.

You might want to consult an attorney who specializes in this. S/He may charge you $5000, but save you 10x that amount.

All the posts after my last one offer very good advice. Talk to an estate planning attorney who specializes in will writing and elder law. Only someone who sees the entire financial picture (that involves both your money and tangible assets as well as your mother's) can accurately tell you what to do, because every situation is somewhat unique. If and when it comes time to find a RE attorney, maybe the elder law attorney can recommend someone. If you were in Westchester instead of Orange, I could recommend a couple people, but the distance is substantial.

I bought my Mom's home from her estate using a known title and escrow company. They have a "FSBO" package that did the process for a flat fee of $300.00 for their services. They did the deed creation plus other required paperwork to complete the deal for both sides.
Since I know the history of the property, I bought less title insurance in dollar amount than normal. Still that made them do all the leg work a normal closing would do. Personally, I am a strong believer in Title Insurance since I was a real estate broker a quarter century ago and know some of the title pitfalls. Cost of the title insurance was over and above the $300.00
Total cost under $500.00.


FSBO=For Sale by Owner

UncleJr said:   
BostonOne said:   
UncleJr said:   why in the world would u be paying cash for the full market price for your mother's house?
  Mother needs the money and he needs the house.

if he needs a house he can buy another one since he's paying full market prices.
if she needs money, she can borrow against the house.
so many other better alternatives than doing this.

 
Beg to disagree.
If OP buys another house, OP will (indirectly) pay agent commission(s) unless OP does not retain an agent, buys an FSBO home and lives in a state that permits direct buyer-seller transactions without a realtor/agent being involved
If OP's mom borrows against the house, there will be origination costs/fees on the loan, either upfront or tacked on to the loan. Not to mention, interest charges.
We don't know - OP's mom may be able to exclude cap gains if gain < 250K individual/500K joint.

Again, thank you for your posts & insights.

UncleJr, I saw this phrase earlier and you mentioned it again. What do you mean when you say by not buying it now I get a "stepped up basis later"? I'm not sure what that means.

The house has not appreciated more than $250K. She will not need Medicaid.

Barnegat said:   The house has not appreciated more than $250K.
The most important fact is finally revealed.  OP, find a real estate attorney to put the deal together for you and write your mom a check.  As long as your mom doesn't have a taxable event, the other considerations mentioned above are not important.

The only possible implication for you would be if the house appreciates considerably between now and the time you would otherwise inherit it, and then appreciates considerably between that time and when you later sell it yourself.  Let's say you are buying the house today for $200k, and it appreciates to $600k in ten years when you want to sell it.  You have a $400k gain.  You get to exclude the first $250k of gains, and you would pay tax on the remaining $150k in gains.  Now let's say you DON'T buy it today, but instead you inherit the house in five years (sorry - it is just an example), and at the time of your mother's passing, the house is now worth $300k.  You get that "stepped up" basis of $300k.  Now fast forward to when you sell it for $600k, your gain is only $300k.  Again exclude the first $250k, and you would pay tax on the remaining $50k in gains.

That would be a pretty dramatic gain, but hopefully the example makes the point.  

dcwilbur said:   
Barnegat said:   The house has not appreciated more than $250K.
The most important fact is finally revealed.  OP, find a real estate attorney to put the deal together for you and write your mom a check.  As long as your mom doesn't have a taxable event, the other considerations mentioned above are not important.

The only possible implication for you would be if the house appreciates considerably between now and the time you would otherwise inherit it, and then appreciates considerably between that time and when you later sell it yourself.  Let's say you are buying the house today for $200k, and it appreciates to $600k in ten years when you want to sell it.  You have a $400k gain.  You get to exclude the first $250k of gains, and you would pay tax on the remaining $150k in gains.  Now let's say you DON'T buy it today, but instead you inherit the house in five years (sorry - it is just an example), and at the time of your mother's passing, the house is now worth $300k.  You get that "stepped up" basis of $300k.  Now fast forward to when you sell it for $600k, your gain is only $300k.  Again exclude the first $250k, and you would pay tax on the remaining $50k in gains.

That would be a pretty dramatic gain, but hopefully the example makes the point.  

All 100% true and accurate, but it's still a good idea to have a professional look at the full picture.  Is OP married or planning to get married?  Are there other relatives who could potentially be involved, even if OP and his mom try to exclude them?  Are there grandchildren (either OP's offspring or OP's nieces/nephews)?  What's mom's total net worth?  By 2019, the NYS estate tax threshold will match the federal threshold, which is increasing slightly each year, so she probably won't owe a penny in estate tax to anyone, but we don't really know OP's situation.  His mom may have won a few small lottery jackpots over the years, none big enough to make headlines, but enough to have a couple million bucks sitting around in a savings account somewhere.  That may or may not change the strategy as it relates to the transfer of the house.  The answers to these specific questions don't really have to be answered here, because I'm throwing around hypothetical scenarios just to illustrate a point.  It's always best to look at the whole picture before recommending for sure what's best for someone else.  Even for someone with $1-2M, selling a $300K house is a major transaction and it's a big deal if it gets screwed up somehow.  It might not be financially crippling or life changing, but this is FW.  Why risk screwing it up when you can do a quick (maybe free) consult with a professional estate planner to simply make sure everything is accounted for?  If OP wants to lay out all the details of his financial life in this thread, I think FW could do as good a job as a professional, but as of right now, we don't have enough information to be 100% sure that writing a check to his mother is necessarily the best for both of them.

"Stepped up basis" refers the the value of the home for evaluation of taxation. "Basis" is the starting number.

While we know there is not a gain more than $250k per OP, here is an example:

Mom bought house 50 years ago for $50,000.  That is the basis.
Mom sells the house for $300k to OP.  Gain is $250k.
House is worth $400k, but OP bought below market.  
OP sells in ten years for $500k.  $500 - 300 is $200k gain for OP.

OP inherits home.  No gain. Basis becomes $400k.
OP sells in ten years for $500k. $500 - 400 is $100k gain for OP.


OP has not explained whether there are other heirs or not, and that is a big part of this.

OP should also understand the law as it regards the reassessment of property value for taxation when the transfer happens.  Many states exempt transfer to a child, but not all do, and missing that hurdle could trigger an expensive property tax increase for OP.
 

Another alternative is to gift each other using your lifetime tax exemption using fair market assessment via appraisal. $5.5 mil lifetime exemption per individual/spouse, and both you and your mom would file the gifting under your Federal Income Tax reporting. Transfer can be done by escrow company via Grant Deed and PCOR.

You should consult with your tax advisor, but this should eliminate taxes, and minimize transfer costs 200-300 with the escrow co for ppwk/notarization/registrar filing, appriasal costs (200-400), plus any nominal accountant costs for the additional form for your Fed tax filing.

Barnegat said:   Again, thank you for your posts & insights.

UncleJr, I saw this phrase earlier and you mentioned it again. What do you mean when you say by not buying it now I get a "stepped up basis later"? I'm not sure what that means.

The house has not appreciated more than $250K. She will not need Medicaid.

  
Please explain, "She will not need Medicaid."

Does she have a retiree medical coverage?

joejoesan said:   
Barnegat said:   Again, thank you for your posts & insights.

UncleJr, I saw this phrase earlier and you mentioned it again. What do you mean when you say by not buying it now I get a "stepped up basis later"? I'm not sure what that means.

The house has not appreciated more than $250K. She will not need Medicaid.

  
Please explain, "She will not need Medicaid."

Does she have a retiree medical coverage?

  Retiree medical coverage is Medicare, not Medicaid...

For people who don't want two attorneys, you could probably get away with just one for the buyer. That attorney just represents the buyer and prepares the paperwork for the seller to sign.

The reason you might want to sell it is the 5 year look back period in case your mother ends up in a nursing home. They look back 5 years to see if there were any assets given away and they claw it back. That's why the recommendation to consult a tax professional who can go over the options. One of them is to put the house in an irrevocable trust.

To actually do the transfer, you just need a RE attorney and/or a RE Title Company. (not a title search company) Usually these two are one and the same. I would expect the costs to be around or under $750-$1000 - however, you should speak with someone experienced to make sure that it would not be smarter for you to add on any extra costs (like title insurance, etc) in case that could come back to bite you later when you want to sell. (yes even if it is 20 years from now)

This advice has come up a few times, however you should absolutely pay for a consult with an estate planning attorney. You have MUCH to lose by not doing this. While I understand that you have the best intentions, there are many reasons why this could backfire on you. The biggest would be that you are going to give your mother a windfall of cash - which, depending on state, could be treated VERY VERY differently than having $200k (for instance) of equity in her house. For instance, let's say that she has some terrible medical condition crop up the month after your sale - or worse, let's say she causes a car accident and gets sued - suddenly that $200k is fair game for someone else to take away. You could inadvertently create a situation where you are out the price of the house, AND your mother is in a position to "lose" the money, whereas it may have been protected in her home before.

Speak to an estate planner about the risks of changing your mom's home asset into a cash asset. You may be better off simply paying all expenses and making sure the house is correctly transferred to you in her will.  Or the house could be placed in a trust, or any number of other possibilities.  While I 100% applaud your intentions, unfortunately we live in a complex world.  You won't be helping anyone if you put your own hard earned money at risk - and could jeopardize your ability to help your mom out in the future.

Skipping 17 Messages...
All Cash & keep it in the family? Put the house into a trust. Have a estate lawyer do it. $500 and it'll be ironclad and you can do whatever you want with it. You can still have a homestead or get a equity loan. It'll also obfuscate ownership somewhat so people can't find you by looking up you name etc. It can also prevent clawback ( such as from medicaid/medicare )and liens etc if you do it right.



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