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How Do You Transfer a Property With a Mortgage?

How do you transfer a property with a mortgage to a child? Can I give it to them as a gift or sell it for $1?

Michael Jensen, Mortgage and Finance Guru
, Mortgage and Finance Guru

Transferring ownership of a property to a child, or anyone for that matter, is a relatively straightforward process. You can use a quit claim deed or similar legal process to transfer your ownership interest in a property to another person. The process is the same whether you are gifting the property or selling it for a nominal fee such as $1.

You can transfer the property on your own or work with a real estate attorney to make sure the transaction is executed properly. It is important that the necessary documents are filed with your county recorders office so that the property transfer is legally recorded. At the end of the process, the new property ownership is a matter of public record.

While transferring property ownership is relatively simple, the process is more complicated if there is a mortgage on the property. Most mortgages contain an acceleration clause, also known as an alienation clause, that allows the lender to demand that the borrower repays the mortgage in full if ownership of the property is transferred without the lender's permission.

So if you legally give the property to your child or sell it for any amount of money, that could trigger the acceleration clause in your mortgage and you may be required to repay the outstanding loan balance immediately. If you have sufficient funds, the acceleration clause is not an issue but if you do not have enough money you could technically default on your mortgage which is problematic to say the least.

One option that avoids triggering the acceleration clause issue is to add your child to the property title as a joint tenant. Because you remain an owner of the property, adding your child to the title should not trigger the acceleration clause.

Although it is not necessary, if you want to you could refinance the existing mortgage on the property and add your child to the new mortgage. In this scenario, you and your child would be joint owners of the property as well as co-mortgagors. You would still be legally responsible for the mortgage along with your child and the mortgage would appear on both of your credit reports.

The table below shows refinance mortgage rates and closing costs for top-rated lenders near you. We recommend that you contact multiple lenders to find the best refinance terms.

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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

The final option for transferring the property is to sell it to your child outright and use the proceeds from the sale to pay off your existing mortgage. In this scenario your child becomes sole owner of the home and sole borrower on the mortgage.

In this case your child needs to qualify for the mortgage to buy the property solely based on his or her financial profile and credit score, which may be challenging depending on her or his monthly income and debt expenses. This approach is also not really gifting the property to your child -- you are making her or him buy it.

If you do decide to gift the property or sell it for a below market value, I recommend that you contact a real estate attorney or accountant to understand the tax consequences of transferring the property. Depending on the value of the property and other factors you may be required to file tax documents related to the gift.

Sources

"Frequently Asked Questions on Gift Taxes."  IRS.  Internal Revenue Service, January 16 2020.  Web.

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About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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