Purchasing home from disabled father

My father is disabled and i currently care for him. I would
like to purchase the home from him and he agrees he would like
to sell me the home. Is it possible for him to sell it to me
for what is left on the loan? I also recently got approved for
a USDA loan. Am i able to purchase the home for that cost and
what steps would i take to go about the process? Any advice or
tips would be great

Asked on April 3, 2017 under Real Estate Law, Ohio

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

If your father is on Medicaid or will need Medicaid, selling for the balance of the loan will pose an issue: Medicaid recovers money it pays out from the recipient's assets. To prevent people from hiding assets with various favorable transfers to family or friend, Medicaid can "look back" up to 5 years and undo transfers that for less than fair market value during that time frame, to get at the asset. (If sold for fair market value, they do not do this, since the Medicaid recipient received the fair market price and had that as an asset.) If the remaining loan balance is *close* to fair market value, you can get away with this: since a sale to a child will incur less carrying cost, less delay, less marketing cost, etc., you can pay a little less than fair market value in light of those savings--the recipient of Medicaid, by avoiding those costs, still nets out well even with a slight break or savings to the buyer. But if you go much under fair market value, you expose yourself to having the transaction set aside if Medicaid gets involved.
Also, there could be tax consequences to buying an asset worth $X for, say, 40% of that amount; the difference between value and what you paid could in some scenarios represent a taxable gain to you. You should speak with a tax preparer about this issue.


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