parents still owe 100k in mortgage. can they transfer house to their kids?

They can sign a quitclaim deed signing title in the property over to the kids. But, why would they do that? They would still be obligated to pay the mortgage payments and the bank still holds the note on the property, meaning that it doesn’t matter whose name title is in, if someone defaults on the mortgage, they can still legally seize the property in foreclosure.

Kids can get a loan for $ 100k to pay off existing mortgage. The house can have the kids’ names added to the title, but the loan will remain in the parents name (if California allows it). Many other states do.

Before proceeding they should check with a financial planner and an attorney who specializes in estates and trusts. There are a number of pitfalls in doing this and they need to be fully aware of them before proceeding.

The parents may have to file a gift tax return and possibly pay a gift tax on the gift of equity. While the lifetime exclusion is now very generous ($ 5,000,000) it offsets the estate tax exclusion dollar for dollar and this needs to be taken into consideration.

The children may pay substantially higher capital gains taxes if they receive the home as a gift as opposed to a bequest upon the death of both parents. Gifts pass through the original basis to the recipient but property passed through the parents estate generally gets the stepped up basis as of the date of death. If the parents owned the home for a long time, the difference in tax can be breathtaking.

The mortgage may have a due on sale clause. If the lender exercises their right under that clause, the mortgage may become due and payable in full even if nobody has the cash or can qualify for another mortgage to pay it off.

There is no possible way to transfer title and avoid new property tax.

A new loan for the 100k will have to happen, gift taxes have to be paid on this by the parents, and a new tax assessment happens.

It would make more sense to just give them a monthly allowance to pay their mortgage.

The parents can place them “in trust” of the property via the deed at the recorder or county clerk in some counties even the tax assessors office, that way if they die no inheritance tax. It automatically go to the child(ren) whom they place in trust.

However they will still inherit the debt as well on the house but at that time the bank has no choice but to allow the children to take over the existing mortgage at that time, or write a new mortgage for the remaining balance.