Transfer of Equity Definition
Unlike sale and purchase, the transfer-of-equity involves one of the existing legal owners who will remain on the title while the other party is added or removed from the title. The transfer-of-equity is the legal process if you require changing the legal ownership of a property.
Not all transfer of ownership is simple as they may sound. It is a process needed when one of the original owners remains on the deed. It means that in some cases, more than two parties might be involved in the process. Remember, the property can’t have more than four owners, but several parties may get involved in the process.
When doing the transfer, all parties must agree on the outcome. The fact that no property search is involved, each party must look at the transaction carefully. Failure to that complications might occur in cases of conflicts and mortgages.
What is Equity?
On the other hand, equity means the value of your property less the outstanding sum of the mortgage. In other terms, it is the percentage of your property that you own. When one owner is giving up on their share, the other party receives the total percentage.
If there is no equity or a situation of limited equity, one can re-mortgage with an existing lender or a new party. The funds provided by the new member may act as compensation to the person leaving the contract.
What Are The Main Reasons For The Transfer Of Equity?
Divorce, through the legal way, comes in with the division of property between you and your spouse. The home is the most critical asset that cannot be divided into two physically. It will call for the need to apply for a transfer-of-equity.
One of the partners will have to remove the ex-partner from the deed if you have divorced. The remaining partner can agree to pay half the property’s value to the spouse as compensation for removal from the deed.
A current market price may need to be established to compensate the partner leaving the deed for this situation. The shares of each partner can also change depending on the situation.
Getting Married To A New Partner
Most people marry new partners after acquiring a property. Some may marry again after a divorce and may need to add their new partner on the deed. A transfer-of-equity must be done to incorporate the new partner.
In case the property was still under mortgage, the parties will have to seek the consent of the mortgage lender to go ahead with the transfer process.
Buying The Property As a Joint
Currently, most people are buying properties together with family members or friends. The application of a transfer-of-equity will be essential to incorporate the two owners into the deed.
Ease Tax Services
Most spouses transfer ownership to their children for tax efficiency. It may be seen as a gift, but it is essential to seek legal consent before doing it. In such a case, no money exchanges hands.
Processes Involved in the Transfer of Equity
The services of a lawyer are essential when planning a transfer-of-equity. But the lawyer is not involved in any of the processes. You’ll need a Conveyancing Solicitor to complete the legal requirements in a transfer of equity. You may have more than one legal advisor in your team, especially if it involves a divorce case.
Here are the main stages involved in the transfer:
1. Review the Ownership Documents
The ownership document may be in the form of a title deed or a lease agreement. The documents must contain the names of the two owners in case of a divorce or separation. In a scenario where a new member is added to the deed, the original owner’s name must be present on the deed.
The persons responsible for actualising the transfer will also confirm the co-ownership status of a property with the relevant department. In cases where there is a conflict, or the owner is dead, the death certificate is attached to show proof of ownership.
2. Prepare the Transfer Deeds Documents
There are several documents required for the transfer process to take place. The most important document required is a form of identification to prove that the parties involved are the property’s real owners.
If a parent is transferring equity to the children, one needs to provide evidence to show that they are the legal guardians. For adoption scenarios, the adoption permit will act as the birth certificate to show proof. In some cases, one may need to swear an affidavit if any conflicts may arise.
A marriage certificate is equally essential when adding or removing a spouse. It is the only legal evidence to prove the two parties are married. Divorce documents are also important when you want to remove your ex-partner from the deed if you have divorced.
3. Organise a Meeting with the Involved Parties
After preparing all the transfer deed documents, it is essential to meet all the necessary people involved. The people who should be present include the original owner(s) of the property, the persons being removed or added, a witness, and the legal advisor. The task of the legal advisor is to sign the transfer document in front of the witness.
4. Take Notice To The Mortgage Lender
If the property is still under mortgage, the mortgage lender’s consent is required to go ahead with the transfer . Failure to do that will bring complications during the transfer process.
5. Do the Final Registration of the Deed at the Relevant Department
When the above process is successful, the final part to actualise the transfer is done. The documents are submitted to the relevant authorities, which, most times, is the land registry department. The department verifies the authenticity of all the documents before approving the request. The department will provide the new parties with a new deed with the actual owner’s names (s).
What Happens in the Case of a Mortgage on the Property?
People buy properties under mortgages. Sometimes one party may leave, and the need to remove the person from the terms and conditions is required. One should seek the mortgage lender’s consent to go ahead with the transfer. One cannot leave the deeds without sorting the debts used to purchase them.
There are several ways to do it. The method you choose to apply depends entirely on the circumstance of the transfer. Below are some of the ways to apply;
- Clear the mortgage with other resources. You can pay it off using other resources you own. This process only applies if one files for bankruptcy or when you refinance.
- Seek approval from the lender. It happens in case the co-owner of the property purchases the share of the other party.
- Re-mortgage the property to acquire enough funds to clear the existing loan and get surplus to clear the buyout. It is vital, especially when separating from your partner.
Cost of Transfer of Equity
The cost of a transfer-of-equity will highly depend on the circumstance of the occurrence. There are no fixed charges, and the fees are calculated according to the transfer type. The following are the charges that you will likely incur during the transfer:
The calculation of these fees is based on different factors. The main factors that affect the amount include; the property value or whether you need to re-mortgage the property.
These fees depend on the solicitor. Some may include it in the general charges, while others will not. Some of these charges include; ID verification, a copy of the property’s register of title, and ownership change registration.
Some of the banks will charge you their fees. These include service fees that cater to administrative costs involved in the process.
The Stamp Duty Land Tax
It is the heaviest cost incurred in the whole process. There is a limit where the need to pay the land tax depends on the authority rates. The amount is calculated using bands. In scenarios where one party is leaving due to separation stamp duty, land tax is unnecessary.
The stamp duty tax necessarily happens when the property is under a mortgage. When adding a partner into the title, a deed of trust must be in place to set out the property’s ownership. It is in a case where the shares to the property are unequal.
It is advisable always to seek advice from a solicitor to help you through the process. Ensure that you find the right expert to guide you through the whole process. Some people get a fast experience, while some get obstacles due to missing documents.
Ensure that you verify everything before the beginning of the process. Contact your lawyer at the earliest stages to receive proper guidance. Ensure that the said professional is competent and aware of making it simple and straightforward without any complications.