We talk to people all the time who want to “hold title” on their residential property in a way that protects them. Sometimes, they want protection from a Tax perspective, sometimes it’s for Estate purposes – a parent wants to establish what will happen to the property when it passes to their heirs. Sometimes, it’s newlyweds – or they are domestic partners, who are now married and have the same rights in North Carolina. We wanted to provide some basic details on how you can hold title of a home in NC… realizing that we are clearly NOT attorneys, or CPAs. This is information from a Mortgage Lender’s perspective.
Realistically, each closing we have is unique – each partnership is different. How you “hold title” is a decision that has legal, tax and estate planning ramifications. Therefore, it may be prudent to consult an attorney or certified public accountant (CPA).
It is ALSO important to know that MORTGAGE PROGRAMS, and some Banks are going to make decisions about how they will ALLOW you to hold title with your Mortgage. This can sometimes be contradictory to what the Tax Adviser tells you will be the best of all situations. Our job is to try to help you achieve your goals, and get your mortgage, under the terms you are looking for.
Here’s a unique situation we recently encountered, that triggered this post. We recently closed a home for a Single Woman, who was ADAMANT that her brother hold title on the home – even though he would not be on the mortgage. This was emotionally very important to her, because her parents had recently died, and she “needed” this connection with her brother. He wasn’t going to live in the home, or be responsible for the mortgage.
With a FHA Mortgage Loan, this is not possible. FHA only allows you to hold title with those who are on the mortgage. She didn’t want her brother on the mortgage, since he is only 18, in college, lives in another state, and doesn’t really have any credit established. We were able to find a Conventional Loan with a Bank that would allow her to hold Title in this fashion.
Here are some BASIC ways you can hold title of a home in NC. We are giving you this information based upon our experience (we use to own a Title Insurance Company), however, it should not be relied upon as legal definitions, or seen as one size fits all. Each situation is different.
How You Can Hold Title Of A Home In NC
- A single individual who has not been legally married.
- An unmarried individual who was married and is now legally divorced.
- A married individual who wishes to acquire title in his or her name alone. At the time of closing, the spouse of the buyer will be required to specifically disclaim or relinquish his or her right, title and interest to the property – we call this a “hold harmless” agreement. It’s normally used when someone is still in a separation process (in NC we require you to be Separated for 12 months before the divorce). If that’s the situation, we will have to see the recorded separation agreement, and the recorded SPECIFIC TO THIS PROPERTY hold harmless agreement. This is different from a QuitClaim to get OFF of a Deed.
- A living trust is created while an individual is alive and gives the individual control of the distribution of his or her estate. The individual transfers ownership of his or her property and assets into the trust. We do NOT have Banks that will allow us to provide title at closing with a Living Trust. In NC, we have seen multiple cases where the paperwork was drawn up for the Living Trust, but not recorded. We understand this is still a legal document, however, if the transfer of Deed is actually recorded, it’s going to trigger the “Due on Sale” clause included in each mortgage we close.
Buying with Others
Tenancy in Common
The people on the title can sell the property, or lease it out with no restriction, however, in NC there is no right of survivor-ship. When an owner dies, his or her interest passes through probate to their heirs. It does not flow through to the other owners. From a Bank’s perspective (going back to our Single borrower who wanted to add her brother), you have to remember that the Bank wants to be certain they can foreclose on the property. We rarely see Tenancy in Common with Title in NC.
This is how most of the Titles are held in NC. With Joint Tenancy, the house is owned by multiple individuals – and in this case, if one of the owners dies, the remaining owners acquire the share of the deceased owner automatically. So, going back to our Single sister – if she dies, the property ownership automatically goes to her brother. With Joint Tenancy, you share EQUAL right of possession of the home. This means if one person wants to sell the home – and the other one doesn’t… the house can not be sold.
In a community property state, whatever you bring into the marriage or receive individually through gifts or inheritances remains yours, but whatever you earn or acquire during the marriage is co-owned by both parties, regardless of who earned it or whose name is on the title. Of course, if you commingle gift or inheritance cash with a joint account, it very likely will be considered community property by a court.
North Carolina is a COMMON Law State. This means that if your name appears on the ownership document, registration or title, you own it. If you are married, even if your name is not on the Note, you still have ownership. Looking at how you hold title of a home in NC let’s look at it this way – If the Wife is buying the house, we will STILL NEED the husband to come to closing to sign the Deed. In relocation situations, this is a small IMPORTANT detail – that needs to be coordinated, or you could delay the closing.
Corporation, LLC, Partnership, or Trust
It’s virtually impossible to get a traditional residential mortgage on property that you intend to hold in a Corporation, LLC, Partnership or Trust. These transactions are Commercial Loans, and should be applied for as such.
An Accountant might suggest ways to present this differently for tax purposes, if you do a few minor things – however, to hold title of a home in NC with a traditional mortgage, you also can not write the check for the Earnest Money from a LLC Account. The money for the transaction needs to come from a personal account. We will have to show a “paper trail” for any monies that you move around, and document large deposits into your personal account.
We have seen several situations in NC where folks created the documents to hold the property in a Living Trust, a LLC, Corporation – they simply did not RECORD them. Again, broken record here, if you record a DIFFERENT transfer of Deed after the closing, you will trigger the Due on Sale Clause of your mortgage – and you will be required to pay the mortgage off.
Repeating Myself When It Comes To How You Hold Title Of A Home In NC
It is VERY important to know that MORTGAGE PROGRAMS, and some Banks are going to make decisions about how they will ALLOW you to hold title with your Mortgage. This can sometimes be contradictory to what the Tax Adviser tells you will be the best of all situations. FHA will NOT allow you to hold Title with someone who is not on the Mortgage Note. Veteran’s must be MARRIED for their spouse to be on the Note. Conventional Loans, and USDA Home Loans have fewer restrictions.