Mortgaging Barbies

Q, A writer recently wanted to know if a buyer can ask for the homeowner’s Barbie doll collection to be included in the sale of the house. You can include anything, but if the buyer is getting a mortgage loan, the bank’s attorney might not allow it.

My sister and I recently sold my late mother’s house. We included all major appliances and an upright piano. The buyer’s mortgage bank insisted we amend the contract to eliminate the piano, delaying the closing two days. We cannot understand why they allowed some non-built-in appliances but not the piano, but there you are. The buyers still got the piano, but outside of the contract for the house.

A. Sad but true — banks are not allowed to lend mortgage money for the purchase of Barbies. As for those appliances, perhaps even though they started out as personal property, they changed into “fixtures” that could be considered part of the real estate.

Q. The Veterans Affairs used to require that a VA loan include escrow collected by the lender to pay property taxes and insurance. Technically, they don’t require it any longer; but the lender is responsible for those bills if they’re not paid by the homeowner. So you would be hard pressed to find even one lender who will let a VA loan close without escrows.

A. Thanks for clearing that up.

Q. The question in your column was, “If my parents want to transfer a house from their name into my name, what is the best way to do that?”

Your answer was, “Transferring ownership is simple, assuming there is no mortgage involved.”

The first Law of Physics is: “ For every action … there is an equal and opposite reaction.” The same is true in Law: “Do something here … expect a consequence there.”

A simple Quit Claim Deed (QCD) would transfer title, but assuming the transferee paid nothing for the transfer, the parents would have made a “taxable gift.” The donor pays the gift tax.

Then, since the transferee paid $0, her “taxable basis” in the property is $0. Not quite as simple as first described.

A. I have a great deal of respect for lawyers, and I hate to contradict one, assuming that’s what you are, but your information is wrong.

First off, each parent can make the daughter a tax-free gift of $13,000 each year. The rest of the property’s value can pass without actual payment of tax. The amount is subtracted from what they can leave tax-free at death and right now that’s in the millions.

Then about the daughter’s cost basis: with the gift, she also takes over her parents’ cost basis, which is certainly more than zero.

Yes, there are often unintended consequences when parents sign over their home, not only regarding taxes but in other ways. But covering several items in a single column, I pretty much have to limit myself to the specific question asked. There’s always more that could be said about nearly every topic. That reader simply asked how it’s done, not about possible complications. And you’ll notice I did advise they work with a lawyer.

Q. I am a widow two years this June. We moved here to be close to the hospital five years ago and put our three children’s names on the title. If or when I need to go to a health facility, will I need to show a bill of sale, or is that enough?

A. I assume you’re asking about qualifying for Medicaid. The house won’t count as your asset if your children are named as the only owners. That’s if the deed was entered in the county’s public records office at least five years before you apply. Otherwise, there’s a waiting period.

Q. I am a recent widow, and there’s been a lot of paperwork to take care of. Our house was in both our names and I told the tax office to change the bills to just my name. The mortgage was changed to my name too. But what about the title insurance we got when we bought the house? The company doesn’t want to do anything without some expensive work they said searching the public records. If I don’t do anything about it, will I have any trouble if I want to sell the house? Will buyers have any complications?

A. Don’t pay for a new title insurance policy. Your current one is good as long as you own the house. Whoever buys your property will probably buy his or her own policy at the time of sale.

Ÿ Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (include a stamped return envelope), or readers may email her through askedith.com.

© 2012, Creators Syndicate Inc.