What are the tax implications of "giving" my portion of my house to my roommate if the house is under water? Together we owe more than the

Asked by Gary Johnston, 92649 Sat Mar 13, 2010

house is worth but my roommate is willing to take over the whole mortgage so he can own the house solely. Would I have to pay taxes on the "profit" I've made since I sold it for more than the house is worth? Also, would we have to refinance to remove me from the mortgage and loan or could I just sign it over to him?

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Voices Member, , Benton County, OR
Sat Mar 13, 2010

I think Karen gave you a good basic response....My opinion is you are asking "questions" about Tax issues and legal issues that all carry different degrees of risk financially and legally...Some very serious!

I think asking Real Estate Agents is the wrong place to seek answers to your questions....

Wanna know about Taxes? Talk to a Tax expert...RE Agents are not Tax experts

Legal questions?...Talk to a Legal expert...RE Agents are not Legal experts

Good luck
3 votes
Karen Parsons…, Agent, Laguna Beach, CA
Sat Mar 13, 2010
Hi Gary,

These are questions for a CPA. But my guess is that if there is no "profit" at the time of the transfer, you should not have any tax consequences....you might even be able to use it as a loss. But check with your tax preparer.

As far as the mortgage is concerned, if you have an assumable loan, you might be able to have it signed over to him, you would need to contact the bank to find out. Most likely you do not and he would need to refinance for the mortgage to be completely off your credit. Make sure you know all this information before signing the deed. You might find yourself responsible for the mortgage but not owning any portion of the home. If he defaults, you might be liable.....I would contact a Real Estate Attorney and find out if there is a way to protect you.

Good luck,

3 votes
Dan Chase, Home Buyer, Texas City, TX
Sat Mar 13, 2010
If I was your roommate and you said I will give you the house I would be happy. Then when I realized the house was worth much less than I would have to pay for it I just might hit you in the nose or worse.

If the house is underwater I doubt he could get a mortgage as it would be overpriced. Unless your mortgage is assumable he can't legally use yours.

Technically, you give him nothing but debt. No profit exists.
2 votes
Thom Colby, Agent, Irvine, CA
Sat Mar 13, 2010
Gary -

Karen is on-the-mark about the mortgage liability. Unless you have an assumable loan (highly unlikely) AND you work with the bank to transfer that mortgage you will continue to be liable for the entire term. The liklihood of any bank transferring that mortgage from two individuals to one individual when a property is under-water is ZERO. If you do a Grant Deed to your roommate, be careful, you remain liable and responsible for that mortgage until it is paid off (either by a new mortgage or by a sale). If you do remain on the mortgage and "give it" to your roommate, you will continue to be liable for any deficiency that may occur in the future by short sale and/or foreclosure down the road.

This is probably not what you want to hear, but it's the facts and you need to be very careful. Depending on the Lender, your roommate likely cannot buy-you-out it in a short sale. Most banks require short sales be through an Arm's Length Transaction (no relatives or friends or former owners can buy it).

I have a very good friend (REALTOR) who went through an amicable divorce several years ago. Her husband kept the house and they did a Grant Deed from her to him. He promised to refinance but guess what, he couldn't because his business fell apart. She got the Notices of Default as well as he did when he stopped paying the mortgage. To protect her credit, she had refinance but he still lives there with his new wife!

Be careful and best of luck,

Thom Colby
Broker / REALTOR
Southern CA

"Moving Lives Forward"
Web Reference:  http://www.thomcolby.com
1 vote
, ,
Thu Aug 15, 2013
I was just looking through old post and I noticed yours. If you were not able to refinance at the time of the post, I can certainly help you out now. You can call me at 408-352-5147 or email me at AGreer@themortgageoutlet.com. You can check us out at http://www.TheMortgageOutlet.com. I will look at your situation and present you with some options.

Alex Greer
NMLS #1056079
0 votes
, ,
Tue May 7, 2013
Just keep in mind doing this may not relieve you of any liability if the house goes into default, in fact you may have more liability. , I would happy to consult with you. I do work here in the are as lender. Contact me if you would like to discuss it.
Here is the short version. If he assumes then defaults on the mortgage, and the lender loses money you would get a 1099 for the loss even if he assumed your mortgage. I found this out the hard way.
Also what will happen is that the lender will come after you for any losses, if he assumes your mortgage you are liable for every dime, where if you had defaulted on it while in your name, they can only take the house if they foreclose under a trust deed.
It could be structured in a way to ease these problems.
0 votes
Tamara Schus…, Agent, Naperville, IL
Tue Feb 26, 2013
Always ask for tax advice to your lawyer or CPA. Tax laws change every year.
0 votes
Bob Phillips, Agent, Rancho Santa Margarita, CA
Sat Mar 13, 2010
Dan said: "Technically, you give him nothing but debt. No profit exists."

You don't know that, Dan. Gary never told us what he paid for the property.

That's one reason I asked the questions I did - there is probably not just one possible answer.
0 votes
Bob Phillips, Agent, Rancho Santa Margarita, CA
Sat Mar 13, 2010
Bottom line? Dunes answer is the most likely correct. However, there are some blanks you haven't filled in.

Questions about your situation:

Is the property now worth more than you originally paid for it?

Were you both on title and qualified for the original loan when you first bought the property?

Have you refinanced it since you first bought it, especially for more money than the original purchase loan?

Are you SURE that it is underwater? If it is in the lower price ranges, those have actually increased in value about 8-10%, in Orange County, over the past 12 months. If you are less than 125% loan to value you might still be able to refinance, as per the Government's HARP program - see my recent blog on that subject:


Check things out with that blog, with your tax man, and with an attorney, and perhaps you will come up with some viable choices. Good luck in finding solutions.
0 votes
Emily Knell, Agent, Huntington Beach, CA
Sat Mar 13, 2010
I suggest you get a Free Consultation with Paladin Legal Advocacy Center. It's Free goshdarnit, take advantage.
http://www.PaladinLegalCenter.com or call them at 888-PLAC-911 ask for Nick Sullo, that's who I work with, he helps my sellers who are doing short sales to negotiate lesser damage to credit & a whole host of other legalities.

They also help with loan modification. You should speak to an attorney or CPA regardless. You can't just sign over your liability to your mortg. to your friend since you originally were one of the co-borrowers who promised to repay the debt.

The only way to get yourself off is to Refinance into your roommates name only, which isn't going to work in this market because you're upside down.

By the way, what financial sense does it make for your roommate to take on a house solely that is so underwater? I suppose the question is, how far underwater are you? $25K or $250K?

You should also consider short selling. Then you both can each buy another home in the future that is down to current fair market value levels and each watch as your equity GROWS FROM THE BOTTOM!!

562-430-3053 cell
0 votes
Mark Artesani, Agent, Newport Beach, CA
Sat Mar 13, 2010
You need a lawyer and a tax consultant to help you for those questions. If you need a referra,l Please call me.

Mark Artesani

0 votes
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