Ownership and Title and the Due on Sale Clause

[Rocky Pe Benito]

Hello Bankers, Lenders, and Mortgage Brokers,

What would be the legal way to add a family member to the title and mortgage without triggering the Due on Sale Clause? This family member is managing the property (pays mortgage/interests, taxes/insurance, and collects rents). I would like to remove myself from the mortgage and title since I'm retiring but I cannot just "gift" it because there is still a (conventional) mortgage. Your advice would be greatly appreciated!

Thank you,

Rocky

[Matt Devincenzo]

You're talking three separate issues, taxable income, title/ownership and lending/financing. 

He can and in fact is required 100% to claim the rental income he collects. He does not need to 'own' the property to receive and claim the income, the act of receiving money triggers the requirement to report that income on his taxes. The IRS doesn't care how he got the money, and they don't review or ask about the title to the property.

Adding him to title in addition to you being on title does not trigger DOS. The DOS is only triggered if the title is 'alienated' from the borrower, which seemingly is you. If you are still on title with him them there is no DOS risk. If he refinances you could be removed from title then and there wouldn't be an issue.

If he is on title he can refinance the existing loan, and the rental income will offset the property's debt dollar for dollar so even if his personal income isn't normally high enough adding him to title will help make qualification easier. Once he qualifies he could refinance and remove you from title concurrently and your issues would be resolved at that point. 

While everything is related by being tied to the same home, one (title) does not dictate how the others are evaluated (taxes)...