Is transferring a mortgage by putting it under a corporation really an option??

Asked by Ginessa, 10705 Sun Jun 27, 2010

My mother's house has been under my name since I was 21. I'm ready to start my own life and having her house under my name is holding me back.

I want to put the house under her name BUT she has really bad credit and wouldn't qualify to take over the mortgage. However, she is a business owner and has a corporation.

She has recently visited a real state lawyer that has advised her that putting the house under her corporation
is an option. Is this really true? Any tips??

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Don Tepper, Agent, Burke, VA
Sun Jun 27, 2010
Yes. The real estate lawyer appears to know something about real estate law. (Sorry, but asking whether basic advice provided by a real estate lawyer on a real estate issue is "really true" seems odd--especially when almost all of us here advise people to speak to lawyers in cases like this.)

I'm not a lawyer, so what follows is not legal advice. For that, you need to speak to a lawyer (which you already have). However . . .

There are two different issues here: (1) Ownership, and (2) Mortgage.

I doubt your owning the home is holding you back. That means the deed would be in your name. That would actually be an asset. The house is worth something. And if the deed's in your name, you can transfer ownership to whomever you want. You don't need anyone's permission to do so.

Regarding the mortgage: It appears from reading your question that the mortgage is in your name. And that indeed could hold you back. However, to get the mortgage out of your name, someone else will have to refinance the property. Usually that'd occur if you were selling your home to Joe Smith down the street. He'd get a new mortgage, and you'd transfer the deed to him. The catch, of course, is that Joe has to qualify for the mortgage.

In the same way, for the mortgage to become your mom's responsibility, she'd have to refinance in her name--which she can't do because "she has really bad credit and wouldn't qualify." And the bank isn't going to let her "take over the mortgage." There'd be no incentive for them to do so.

So: You need to get the mortgage out of your name. Will transferring ownership to a corporation do the trick? Not by itself. As noted above, if the deed's in your name, you can transfer it to whomever you want. You certainly can deed it to the corporation. But the mortgage will remain in your name.

You could sell the house to the corporation. The catch is that the corporation would have to buy it--either with cash (eliminating the mortgage) or with new financing. You say your mom's credit is bad. How about the corporation's? Could it qualify for a mortgage? And even if it could, the corporation's accountant should look at all the tax implications.

One other point--and, because I'm not an accountant, this isn't accounting advice. For that, you need an accountant. However, usually it makes more sense to transfer ownership to an LLC than to an S corp or a traditional corporation. There are a number of tax reasons for this. An accountant can explain those to you.

But the key point is that what you really need to do is replace the current mortgage (with your name on it) with a new mortgage without your name on it.

Hope that helps.
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Ginessa, , 10705
Fri Jul 2, 2010
Hi! Everyone's advice and insight has been very helpful. Thank you!!
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Barbara O'Co…, Agent, Yonkers, NY
Mon Jun 28, 2010

If your Mom has already consulted with a real estate attorney, then, if you are not satisified perhaps you should both see the attorney together. If you are questioning the attorney's ability, then maybe he/she is not the right attorney for your family.

I caution you in taking advice from anyone other a than a real estate attorney on this issue. Although agents are knowledgeable in many of the same areas, we do not have the legal experience or legal degree to give you legal advice.

Good luck and if you need the names of few attorneys that you contact and interview, give me a call at the number below.

Barbara O'Connell
Licensed Real Estate Salesperson
Margot Bennett, Inc.
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First Last, , 90002
Mon Jun 28, 2010
The lawyer your mother visited gave advice to your mother that is best for your mother--at least, we hope so! Nothing wrong with that.

But what I'm concerned about is you getting advice that is best for Ginessa.

I'm afraid you need to spend the money it takes to consult with your own lawyer, one whose responsibility is to protect your best interests, not Mom's. I urge you to do so. We don't know why this house was put in your name to begin with, and we don't understand why it's holding you back now--presumably, you have too much debt to obtain loans of your own. We don't know who has been paying that mortgage, regardless of whose name is on the note.

Sure, an S corp or an LLC can hold property and mortgages. Whether you mother's existing corp is the best place for you and her is a separate question. Also, definitely ask your lawyer about the advantages/disadvantages of putting the house into a Revocable Trust, thereby avoiding probate on your mother's death. Both of these are easy options (although cost is$1000+ to set up) and used all the time for real estate holdings.

Karla Harby, Lic. Real Estate Salesperson
Charles Rutenberg Realty, New York City
0 votes
Ruth and Per…, Agent, Los Gatos, CA
Sun Jun 27, 2010
Hi Ginessa

Good question. The lawyer is right he can set it up under a corporation.
Remember the rates for a mortgage under a corporation are much higher and different standards apply.

I understand you mom has bad credit and cannot qualify. You are associated with the loan and so cannot get another or maybe another but not too the Max. You would be able to if you did not have the burden of this loan.

Remember you can transfer it for a short time and then refinance it to a short term loan say three to five years fixed.

Good luck.
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Scott Godzyk, Agent, Manchester, NH
Sun Jun 27, 2010
You can put ownership under teh corporation, however you would still either need a new mortgage to get it out of your name and into teh corp. or have the existing mortgage holder be willing to transfer it out of your name into teh corporation. the corporation is going to have to show full books including income and liabilities. You will need to contact the current lender as well as some new mortgage companies.

good luck working things out
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