Profile picture for user09681658

Parents home in pre-foreclosure, can I pay to reinstate, add my name to the deed and then refi later

My parents house is in pre-foreclosure. They have 2 lien holders (1st mortgage and 2nd home equity line of credit that turned into a 2nd mortgage). The pre-foreclosure is only for the 1st mortgage, but they are behind in payments on the 2nd as well. I want to pay the amount to reinstate their loan and have them add my name on to the deed.  Then in 12 months can I remove their names from the deed and refinance the 2 loans into 1 loan in my name?  Is there risk with taking their names off the loan if I am refinancing it? Because there is $300K of equity in the house can I do a cash out refinance? (again the house is NOT upside down, they are in pre-foreclosure because they got behind in payments).
  • October 02 2013 - Alameda
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Answers (13)

Profile picture for user5583731
Hi i would just like to know what did u end up doing wth the pre-foreclosure? did the paying the behind payments reinstate the loan?? and were u able to refinance?
  • May 15
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its proper and complete out lined but  , removing your parents name now it would be disadvantage for you for refinance. most lender does not allow refinance cash out, when main owner has quite claim from the deed. 
  • October 26 2013
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Profile picture for wetdawgs
The strategy you outlined appears to be one that has been without the benefit of the professionals.   You've described a number of incorrect assumptions that are pretty serious.



  • October 15 2013
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Profile picture for Pacita Dimacali
Nearly every one has suggested that you engage the professionals for advice -- attorney, CPA.

For something as important as this, you're best served to shell out the fees in order to avoid any unseen problems.

And since you're talking about refinancing, add a mortgage broker to the mix to see what you will need to accomplish what you want to do.

Do it right the first time. Good luck to you.

  • October 15 2013
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Profile picture for user09681658
In case any of you were wondering I figured out how this could be done!

1. Have my parents add my name to the deed "grant deed" making sure that the reason is expression of love for their child.
2. Be on the deed for 6-12 months depending on the lender's requirement for "seasoning".
3. Refinance the house and the same day do a quit claim to remove their names from the mortgage and deed (You CAN sign all the documents on the same day, at the last minute - depending on the escrow/title officer or attorney handling the transaction. They usually ask for the documents to be signed ahead of time, just for everyone's convenience because it might be hard to find them all at the final moments).

There is no tax event because its family transfer which avoids transfer fees and proposition 58 in California allows parent to child transfers to avoid property tax reassessment. The due on sale clause is also not an issue because the new loan will only have my name on the mortgage.
  • October 03 2013
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Here's what you need to do, 096x.

Collaborate with an estate attorney and a CPA to hash out the tax and estate issues that your plan might create.

You can't add and subtract people from deeds; deeds are active instruments that convey title, and every time you record one, you risk triggering not only a tax event, but a due-on-sale clause from your lender.

This situation requires professional help and care, and is well worth the $1500 or $2000 in fees. 

All the best,
  • October 02 2013
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Profile picture for wetdawgs
"Because there is $300K of equity in the house ...."   With this amount of equity, if you end up owning the home as you propose, your parents are like going to owe a huge gift tax bill.    Please have them review this proposal with an accountant before planning on something that may be considerably more expensive than you are thinking up front.

  • October 02 2013
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Profile picture for user09681658
Pacita, thank you for your input!
Yes, first I want to give them the money to get the loan reinstated (priority). I also want to add my name onto the deed immediately because I was told it has to be "seasoned" for at least 6-12 months (depending on the lender) before you can refinance or anything. After it was seasoned I wanted to refinance and because of my parents bad credit I wanted to avoid them being on the loan when I tried to refinance.  My credit score is a 721 and they are in the low 500's. Do you have any suggestions that would allow me to eventually become the sole person on the deed and loan?
Thanks again! 
  • October 02 2013
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You could possibly add your name to the deed now, and refinance in your name, now. If you have the financial strength needed. Call a Lender tomorrow. Gregorio Denney maybe. Look him up. He's a wizard.
  • October 02 2013
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Profile picture for blub blub blub
Deeds and mortgage loans are two different things.

Names can be added or removed from the deed by way of a Quit Claim deed.

The mortgage is another matter.  In order for you to be added to the loan, the loan would need to be redone to include all three of you as borrowers.  You will have to ask their lender if they will allow this.
  • October 02 2013
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Profile picture for user09681658

Is there any way to add my name to the loan then, and eventually remove their names?  I have to imagine that sometimes people purchase a home, get married later and then add their spouse to the deed and the loan? I also have to imagine that sometimes after divorces people are able to remove names from the loan to separate assets, right?

  • October 02 2013
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Profile picture for Pacita Dimacali
Sounds like a plan.

When they/you refinance, it's essentially getting a new loan by paying off the current loan(s). They probably can't refinance on their own if their credit has suffered as a consequence of being behind on the loan. They may qualify for refinancing if another party --- you --- are on the loan. Essentially, you also assume the same responsibilities for, and risks of the loan.

Have you considered giving them the money to get their loan reinstated. And once that's done, you can apply to refinance, and use that time to also add your name on the deed. Later, they can execute a quit-claim deed. 

The challenge with multiple names on the loan --- all of them are responsible for the loan.  If your parents are responsible for making payments, and they default again, your own credit (if your name is on the loan) is just as adversely affected. The risk is yours if they have a recurring history of being delinquent.

Two people you should consult about this: a mortgage broker, and a real estate attorney.  

So much at stake: you don't want to lose the house. Take care of that first.  And may the force be with you.

Good luck!
  • October 02 2013
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Profile picture for blub blub blub
Adding your name to the deed does not put you on the loan, so you would not be able to refinance their loan in your name.
 
In order for you to have the loan in your name, your parents would have to sell the house to you.  If the house is in foreclosure then lenders won't allow a relative to purchase the property.  It needs to be an arms length transaction.(Someone not related/connected to the seller). You'll have to check with their lender to make sure that the lender will allow you to do any of this.

If it's not officailly in foreclosure, then you could pay the deficency to bring the loan current, and then refi as a co-signer later.
  • October 02 2013
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