Lender Could Question Family’s Quitclaim Deed
QUESTION: My wife and I recently purchased a second home, which we are renting to our daughter. Our problem is that when we bought the house, we were advised to put our daughter’s name on the deed as well, in order to get the more favorable “owner occupied” rate on our mortgage. We want to treat this property as a rental for tax purposes. We were advised that we could resolve our problem by simply having our daughter sign a quitclaim deed that removes her as one of the owners. Is this true?--L. B.
ANSWER: According to Michael Hiller, an Encino lawyer specializing in real estate, the “quitclaim” strategy will probably do the trick for you. However, it’s not foolproof.
Basically, a quitclaim deed allows a person to relinquish any interest in a piece of property in favor of another. These documents are extremely common and relatively easy to execute. Presumably you trust that your daughter has not added any debt to the property, so you can rest comfortably that you are getting what you bargained for. (In less cozy transactions, participants might want to get a formal title search.)
Now the only question is how your lender feels about your little charade. That’s the dicey part. Hiller says lenders usually don’t care in a family transaction. However, he says that in other cases, the lender could step in and ask to renegotiate the mortgage terms because there has been an apparent change of ownership. How will the lender find out, you ask? Lenders periodically conduct computerized searches of documents filed in the county recorders’ offices throughout the state.
Gail Sweetland, a spokeswoman for Home Savings of America, one of the nation’s largest mortgage lenders, recommends that you contact the loan service center operated by your lender to discuss your situation. Chances are, Sweetland says, the lender will still consider your rental house as “owner occupied” so long as your daughter--a member of your immediate family--is living in it. At Home Savings, she adds, if you had admitted up front that your daughter would be living in the house, you would still have qualified for the owner-occupied mortgage rate, which saves you about a quarter of a percentage point on the loan rate.
Q: I work for a company that has a pension, profit and savings plan. I will be 59 1/2 years old soon and am 100% vested in the company’s plan. May I withdraw the amount in my account and still continue participating in the plan because I will be staying on the job with the company?--S. J. A.
A: What you are allowed to do with the amount accumulated in your pension, profit and savings plan depends on the terms of the individual plan. However, according to Ellen Marshall, a retirement specialist with the Costa Mesa office of the Morrison & Foerster law firm, most plans require a worker to retire before he becomes eligible to withdraw his pension funds. Still, Marshall advises that your best course of action is to check with your personnel department or the administrator of the plan to learn the precise rules of your arrangement.
Although this doesn’t apply to you yet, beginning next year, the federal government will require pension funds to start making disbursements to all participants age 70 1/2 or more, regardless of whether they are still on the job.
Q: We have added just 500 square feet to our home and have received an inquiry from the assessor’s office about this addition. Will we be reassessed on the 500-square-foot addition or will the entire home be reassessed?--P. G.
A: Relax, just the 500-square-foot addition is subject to reassessment for property tax purposes. According to the terms of the Jarvis Amendment, which was approved as Proposition 13 by California voters in June, 1978, new construction is assessed at the current market value and added to the assessed value of the existing residence. Your property tax bill should not skyrocket because of your home improvement project.
