Locked: Buying a house for less than its actual value so family member does not lose it

skeet50 wrote: ↑ Has your father in law created a Power of Attorney for Property and Personal Care? The one big red flag, imo, in your post is you state the your father in law is mentally incapable of understanding money or finances. This is an alarming statement as your father in law may not have the capacity to enter into any purchase agreement regarding the home and without a legal Power of Attorney for Property, you may not be able to move forward.

My suggestion at this point is to seek legal advice regarding your issues and concerns.

jk9088 wrote: ↑ I may be wrong, but I believe since it's between family you can just go to a lawyer and transfer the title directly from your FIL to you and your wife's name? (You don't need to actually complete a "buy/sell" transaction and no realtors are needed.) The house will be "deemed" to be sold at market value (you may want to pay for an appraisal to be done at time of transfer). You will also need to go to the bank of course to do the mortgage transfer (there may be fees involved and you & your wife will need to qualify for the mortgage through the bank).

Of course this is assuming your FIL is on board with it--he may refuse because he's basically giving up his rights to the house and may risk being kicked out by you...perhaps you can draft up a long-term lease for $1/month rent to keep him at ease?

I definitely second the opinion to talk to a lawyer though--they will be able to suggest the best (fastest/cheapest) way to proceed while ensuring everything is done properly. You will need the lawyer anyways to complete the transaction, no matter how you decide to go about it.

jujojoh wrote: ↑ this is probably the quickest way. Lawyers can tell you more, but this is essentially a gift (Canada has no gift tax). You still need to pay land transfer tax on the mortgaged amount.

As another person said, you will trigger a gain if your future selling price is above the transferred price (net of costs and etc).

About your concern about government - you would worry about it if this property is not your father-in-law's primary residence.

Feneant wrote: ↑ I’m looking for some input on if my plan is sound or if I am missing some law against this or maybe tax consequences.

My wife and I very likely going to have to buy my father in law’s house so that he does not lose it and ends up on the street. .........

My main question is are we even allowed to offer the mortgage value? This amount is about 50% below market value of the house but as I said he will be saving the mortgage cost every month and we won’t be collecting any rent. ......

jk9088 wrote: ↑ ^ Yup, definitely a concern. Which is why I suggested getting an appraisal done at the time of transfer, so you can show exactly what the market value was at the time of "purchase". Do not use the amount your FIL has left on the mortgage or even his purchase price (both likely way lower than the current market value). By getting an appraisal for the highest possible value right now, you can minimize future taxes.

Feneant wrote: ↑
He has a life insurance policy when his wife is in a nursing home and his children are grown so no one needs that money
...

fkungery wrote: ↑ Although that is not what you are asking, your FIL might be better off financially by selling his house at fair market value, as he can extract the remaining 50% equity of his house that you are not paying. I am surprised that you or his daughter have not suggested this financially better option to him.

Feneant wrote: ↑ My wife and I very likely going to have to buy my father in law’s house so that he does not lose it and ends up on the street. He is unable to make the mortgage payments and has 2 maxed out credit lines for about 35000$ plus his bank account is in overdraft every month. I won’t go into the details but there can be no question of giving him charity as he is mentally incapable of understanding money or finances. Bear in mind this is after we provided him with an itemized budget that would allow him to break even but he has done absolutely none of it (e.g. 28$ a month for a newspaper subscription) and congratulated himself on a job well done.

fkungery wrote: ↑ It is a related party transaction. I do not think that an appraisal report for the market value will help, because (a) it is a principal residence to the FIL, and tax exempt, and (b) the buyer (OP) 's cost base is the mortgage value he pays, not the appraised market value of FIL's house.

Feneant wrote: ↑ Ok so this is a lot more confusing than I expected and if he is willing to consider it we'll first need to sit down with a lawyer. If we can buy it for the cost of the mortgage but transfer it at its appraised value that is great but I'm not too worried about capital gains. This is more to help him than as an investment but I expect if we put in 50-60k in renovations at a later time we'd be able to sell for about 80-100k more than we paid. Renovations while he is living there is not an option as he does not clean and he has a dog that has chewed every baseboard, curtains, screens, furniture items in the house so it's losing value every day he spends there.

For the other questions he retired due to disability with 0 savings and significant debt, he does have another daughter but she is (wisely perhaps...) estranged, and we did consider having him sell the house but can't get him to understand that whatever capital gains he makes should be for debt where he instead says he would buy a more expensive house- but yet end up in a better financial position.

Feneant wrote: ↑ ...

For the other questions he retired due to disability with 0 savings and significant debt, he does have another daughter but she is (wisely perhaps...) estranged, and we did consider having him sell the house but can't get him to understand that whatever capital gains he makes should be for debt where he instead says he would buy a more expensive house- but yet end up in a better financial position.