What Are Some Of The Tax Benefits Of A Private Mortgage
The Internal Revenue Service sets limits on how much money family members can gift each other without paying gift taxes. For example in 2016, your father could gift you and your siblings up to $14,000 each without having to pay any gift tax. Or together, your mom and dad could give each of you up to $28,000 without any gift tax consequences. And these annual exemptions would not count against your mom or dads $5.45 million annual gift exemption.
If your father has already maxed out his annual $14,000 exemption, he could still help you out in a time of need by essentially acting as a de facto family bank and using a private mortgage. However, a private loan between family members is subject to the minimum IRS Applicable Federal Rates , which are published monthly. Your father should charge you, at a minimum, the monthly rate published by the IRS. Fortunately, these AFR are generally much lower than commercial rates, and all of the interest and principal payments stay within the family.
As an example, here are the annual AFR Rates or minimum allowable interest rates required for a family loan for three months in 2016:
The Mortgage Contract does not create the actual loan, if simply grants a lien on the property. You will need a separate agreement detailing the loan.
Foreclosures And Trust Deeds
Mortgages and trust deeds have different foreclosure processes. A judicial foreclosure is a court-supervised process enforced when the lender files a lawsuit against the borrower for defaulting on a mortgage. The process is time-consuming and expensive.
Also, if the foreclosed-property auction doesn’t bring in enough money to pay off the promissory note, the lender may file a deficiency judgment against the borrower, suing for the balance. However, even after the property is sold, the borrower has the right of redemption: They may repay the lender within a set amount of time and acquire the property title.
In contrast, a trust deed lets the lender commence a faster and less-expensive non-judicial foreclosure, bypassing the court system and adhering to the procedures outlined in the trust deed and state law. If the borrower does not make the loan current, the property is put up for auction through a trustee’s sale.
The title transfers from the trustee to the new owner through the trustee’s deed after the sale. When there are no bidders at the trustee sale, the property reverts to the lender through a trustee’s deed. Once the property is sold, the borrower has no right of redemption.
How A Mortgage Deed Works
A deed generally is a legal document recording that somebody has a legal interest in a piece of property. There are various types of deeds used for different situations, from sheriff’s deeds used when a sheriff auctions off a property to quitclaim deeds where someone transfers their right to a property to someone else. If you buy or sell a property, a title insurance company will usually verify that the history of deeds on the property is coherent and grants the new owner a clear right of title to it with no surprise owners lurking in the past.
Deeds are generally public records filed, often for a fee, with a county or city registry office. They can be viewed in person by anyone interested in knowing who has an interest in which parcels of land. In some places, they can also be viewed and searched online.
One type of deed is a mortgage deed, used to legally give a bank or other lender an interest in a property until a loan is paid off. The mortgage deed ensures that the lender will get paid if the property is sold and ensures the lender can foreclose on the property if the borrower stops paying.
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What Are The Differences Between A Deed Of Trust And A Mortgage
Due to the similarities, its easy for homeowners to confuse mortgages and deeds of trust.
After all, if some states use them in place of each other, wouldnt they be nearly interchangeable?
Mortgages and deeds of trust may serve the same purpose, but there are a few key distinctions that you should keep in mind.
Here are the top three:
As noted above, the type of foreclosure depends on whether you have a deed of trust or a mortgage.
If you have a deed of trust, youll typically face a nonjudicial foreclosure.
On the other hand, for a mortgage, the lender will need to go through the courts.
Foreclosure length and expense
When you have a mortgage, your lender will need to seek a judicial foreclosure to take back your property.
This means that the mortgage will take much more time and money to foreclosure on.
As a result, many mortgage lenders will use a deed of trust to prompt a nonjudicial foreclosure.
If this is the case, then your lender will almost always spend less time and money reclaiming your property.
Number of parties involved in the foreclosure
The number of parties involved between both types of contracts also differs.
A mortgage involves just two parties: the borrower and the lender.
A deed of trust has a borrower, lender, and a trustee.
The trustee is a neutral third party that holds the title to a property until the loan is completely paid off.
This neutral third party is often an escrow company.
Why You Should Use A Mortgage Deed
Having a written agreement detailing the loan between you and your father can prevent misunderstandings between the two of you and possibly prevent a family fight if something does go wrong. It can also prevent misunderstandings with the IRS. As you can imagine, the IRS tries to crack down on gifts between family members disguised as a loan. In order to avoid having an intra-family loan be deemed a gift , it is important to have a valid and enforceable loan document.
Without a secured loan, a Lender is left with few options if the Borrower goes bankrupt, is sued unexpectedly, dies or simply decides to stop making payments. The Lender will have to go through a lengthy court process and stand in line with other creditors.
Here is a chart of some of the preventable suffering this document could prevent:
|Sympathetic friend with extra funds||Reliable friend needing cash|
Deed Of Trust Vs Mortgage: 9 Things You Should Know
If youve been through the process of applying for a mortgage, you know theres a lot of paperwork involved, and one of those pieces of paperwork includes a deed of trust or a mortgage.
Before you sign one of these documents, you may be wondering, Whats the difference between a deed of trust and a mortgage?
In this blog, well review the definitions of both as well as their similarities and differences so that you can get a clear picture of how they relate.
Lets get started.
Deed In Lieu Vs Foreclosure
Deed in lieu and foreclosure sound similar but are not identical. In a foreclosure, the lender takes back the property after the homeowner fails to make payments. Foreclosure laws can vary from state to state, and there are two ways foreclosure can take place:
- Judicial foreclosure, in which the lender files a lawsuit to reclaim the property
- Nonjudicial foreclosure, in which the lender can foreclose without going through the court system
The biggest differences between a deed in lieu and a foreclosure involve credit score impacts and your financial responsibility after the property has been reclaimed by the lender. In terms of credit reporting and credit scores, having a foreclosure on your credit history can be more damaging than a deed in lieu of foreclosure. Foreclosures and other negative information can stay on your credit reports for up to seven years.
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When Is The Mortgage Deed Required
- It is generally required when you are loaning money from another person or business and want to transfer the interest of the property to another person.
- When you want to borrow money and are required to mortgage your property as a collateral. The deed helps you secure your rights and interest over the property.
Conveyancing Process For Buying A Property
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How Does The Property Deed Differ From A Deed Of Trust
Your property deed is not to be confused with your deed of trust, which is a legal document that secures your loan. While the property deed conveys ownership, the deed of trust does not. The holder of the deed of trust is an accredited third party who holds the property until the loan is repaid.
There are no choices involved or different types of deeds of trust. Its just an instrument that identifies the parties involved, the original loan amount being financed, and mortgage requirements. It also gives your lender the right to foreclose if you default on payments.
What Are The Benefits Of A Mortgage Release
- Eliminate your remaining mortgage debt
- Avoid the negative impact of a foreclosure
- May be eligible for relocation assistance in some cases
- Start repairing your credit sooner than if you went through a foreclosure
- May be eligible for a Fannie Mae mortgage to purchase a home sooner than if you went through foreclosure
- Flexible exit options let qualified homeowners leave the home immediately, or consider other ways to transition out
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Attestation And Stamp Duty
It is pertinent to state that the mortgage deed shall be duly registered and stamped to have legal validity. In case of a Simple mortgage, if the deed is not signed, registered and attested by at least two witnesses, it is equivalent to not having a contract in the first place. The criteria of attestation and registration depend upon the kind of Mortgage. There are some kinds of mortgages that require no registration and attestation if the principal money is less than 100 rupees.
The nominal stamp fee must be paid. The stamp fees depend upon the state the property is located.
Sign Your Mortgage Deed: Guide For Homeowners
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Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/hm-land-registry-sign-your-mortgage-deed/sign-your-mortgage-deed-guide-for-homeowners
The Sign your mortgage deed service from HM Land Registry allows you to quickly and securely sign your mortgage deed at a time that suits you.
You do not have to wait for the paperwork to arrive in the post, sign it in front of a witness, and send it back to your conveyancer or lender. Its all done on your computer or mobile phone.
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Deed Of Trust Vs Mortgage Faqs
Who can be listed on a deed of trust or mortgage?A deed of trust or mortgage lists all the parties in the agreement. Both types of agreements list all of the borrowers and the lender. A deed of trust also includes the trustee.
How are these security instruments recorded in public records?Both mortgages and deeds of trust are recorded with the county in which the property is located. You typically pay a fee for recording the security instrument. When the home loan is paid in full, the lender releases the deed of trust or mortgage.
Does the deed of trust or mortgage have any impact on how I hold title to my home?Legally speaking, your title is separate from your deed of trust or mortgage, Reiss said. Theres legal title and theres equitable title, Reiss said. The legal title is who is technically considered the owner of the property. Equitable title is who the courts would legally consider the owner.
With a mortgage, the homebuyer has both legal and equitable title for the property, but with a deed of trust, legal title gets transferred by the deed of trust to the trustee and they are the legal owner of the property in property records, he said.
With an equitable title, which is the title you hold if you have a deed of trust, you have the legal right to sell and insure your home. Youre the owner from a legal perspective, but the trustee holds the legal title since it could sell your home in the event of a foreclosure.
Is Florida A Mortgage Or Deed Of Trust
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Florida housing lenders employ mortgages and deeds of trust for property sales. However, the state of Florida does not require a deed of trust by law at the time of sale of property.
One may also ask, is New Mexico a deed of trust state? Most states that use deeds of trust to secure home loans are title theory states. A few deed of trust states include West Virginia, Alaska, Virginia, Arizona, Texas, California, North Carolina, Colorado, New Mexico, Idaho, Montana, Illinois, Missouri and Mississippi.
Keeping this in consideration, is the deed of trust the same as a mortgage?
The basic difference between the mortgage as a security instrument and a Deed of Trust is that in a Deed of Trust there are three parties involved, the borrower, the lender, and a trustee, whereas in a mortgage document there are only two parties involved, the borrower and the lender.
What is the principal advantage of a trust deed over a mortgage?
A mortgage creates a lien on real property or gives actual title to the lender depending on the laws of the state in which the property is located.
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What Types Of Deeds Are There
Quitclaim. The quitclaim deed is typically used when one homeowner decides to give up legal rights to the other homeowner-usually in the case of a divorce or break-up. While the quitclaim deed does relieve legal responsibilities for the property, it does not cancel any mortgage interest the quit claimer has in the property-so if you’re on the mortgage, you still may have to pay it.
Grant Deed. The grant deed is a deed that transfers ownership and implies certain things, such as: the title hasn’t already been transferred to another person, except as implicated in the deed. This type of deed isn’t used all that often, but is useful in some scenarios.
Warranty Deed. The warranty deed is used when a homeowner owns the home free and clear, meaning, there are no other liens or claims on the property. The homeowner that has the home transferred to them is guaranteed by the deed to own the property and will not have to worry about dealing with lenders.
Rights In Mortgage Deed States
Generally, states that use mortgage deeds for property-related loans require lenders to use the court system for foreclosure on a property, usually demanding that the borrower pay off the loan in full or allow it to be sold. Precisely what this procedure looks like and how long it takes to complete varies from state-to-state.
Many states allow borrowers some leniency in making late payments to avoid foreclosure and regulate how quickly a lender can move to sell the property or take possession of it. Mortgages are, in some cases, also regulated by federal bank regulators.
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Deeds Of Trust And Foreclosure
This process is regulated by state law and exactly how it works varies from state-to-state. Generally, deed of trust foreclosures do not require court action. Borrowers can file lawsuits to halt or challenge foreclosures as with other contract dispute, but they must have some legal basis for doing so, such as if the lender isn’t adhering to the terms of the agreement or the lender or trustee is breaking state law.
Lenders often prefer to use deeds of trust because foreclosure can be faster or cheaper without the courts getting involved, though borrowers may prefer the protections offered by having the courts involved. If you are involved in foreclosure in any state, it can be a good idea to contact a lawyer.
Lawyers can also help negotiate loan modification agreements that enable borrowers to stay in their houses and avert foreclosure under new loan terms. This can be beneficial to lenders, as well, since they don’t have to go through the foreclosure process and hope for a buyer for the property.