Future Investor 619--CA------------
That sounds very generous of your grandparents, if the loan is less than the market value of the property.
Christy suggest doing a "subject to deal." That would be a good idea if the current loan has good terms. If the current loan is not a very good one, you might just want to go ahead and apply for a new loan in your name. It is not as though you are nailed on a cross because you have a loan.
There is an exception to a lender being able to call a loan due upon the transfer of ownership of a property. If the property is transferred to a child of the current owner, the loan cannot be called due, I believe. Thus, suppose your grandparents deeded the property over to your parent(s) and the parent(s) in turn deeded it over to you. I'd recommend consulting an attorney about such an operation, were you do plan to do it.
There is another positive about doing it this way if the property is in CA. The transfer of a property from parent to child, or vice versa, does not trigger a reassessment of the property value for the local ad valorem property taxes. So, if it passes down through your parents, you would take over the current property tax assessed value, which is probably a lot lower than the market value of the property. This would save you a tremendous amount of property taxes. And it is all legal and moral besides.
There are issues of taxes due upon transfer of a property also. Using the two-step approach I mention above, the parents would have no tax liability because they would have no gain. However, in any transfer from your grandparents to you there could well be a very hefty tax for them to pay to Uncle Sam and Cousin Schwarteneggar, assuming we are talking about CA residents.
Now, people can gift up to $11K or $12K a year to somebody and there is no income tax due. So, it would be possible for your grandparents to deed to you a partial interest in the property worth a little less than that limit this year, then do the same each year hereafter. If the property goes up in value however, it might take a long time to deed it all to you. A better way would be for them to deed you the property and take back a mortgage or deed of trust from you, with the sales price being just less than $11K or $12K below the combined amount of the first loan and the loan that they carry back for you. Then, each year they could gift you just under $11 or 12K by forgining that portion of the loan amount. Also, they could probably reduce the owed amount by more than $11 or 12K because the actual cash value of the loan is probably below the face amount, being a junior loan that might have a weak interest rate. This gets a little complicated, but a good loan broker of hard money loans should be able to calculate out numbers for them.
And, if you can, it would probably be better to continue to own the property, probably living in it, rather than selling it. If you increase the value of the property, you should be able to borrow money using the property for collateral. Borrowed money is not taxed.
There may be some other considerations involved here. You and they probably should sit down with an estate planning attorney before doing anything. Perhaps talking to a CPA knowledgeable about real estate transactions would also be a good idea.
When people just do things without good advice, they can often screw themselves, especially in relation to income taxes and local property taxes.
Good Figuring It All Out*********Ron Starr***********