What to do with a $0 "free" house?

Question

Hi all,  My company has been offered a house for free from an estate.  We're a social enterprise type of company, so the family felt good about donating vs. selling.  The home needs about $15k of mostly cosmetic work, and the ARV should be around $45k.

The donor is planning to quit claim the deed to us, but I was wondering what other due diligence makes sense beyond ensuring a clear title?

Thanks for your advice

Bill Gulley · Answer

Hi Sue, while I know what you mean by "free", I assure you there is no such thing, you'll have expenses from day one.

If this property was being lived in, it's probably okay at the price (LOL) but if it's been vacant I'd say check it out closely. I know you don't want to look like you're looking a gift horse in the mouth, but you really need to.

I'm familiar with the non-profit side and free houses and we have had to turn a few down.

As to title, you need to have a title search done, any cloud on title to your free house can really cost you, especially if you made repairs and found out later at a future sale!

Don't use a quit claim deed, have the donor use a general warranty deed or a special warranty deed if they need to due to deficiences in the property that are warranted by state law under a general warranty deed. The title company can guide you here, better yet, your attorney.

Get insurance, I understand your liability is limited, but you do have risks.

Close with an attorney or title company and get title insurance.

So, you see, it's not free.. :) Good Luck

Account Closed · Answer

I suggest having a title company prepare a title report so you know what you are really getting.  The family/estate may or may not be aware of issues (debts, leins, etc.).  Even with title issues, the property may still be a good deal.  But you should know what you are getting into before you spend any money on the rehab. I also would have an attorney or escrow prepare the paperwork for transfer.  Since it sounds like you are planning to re-sell, you probably need a better deed than a quit claim, and you may want to purchase title insurance now.

From your question it sounds like your company has no real estate experience.  Tread carefully as houses come with liability and costs and taxes.  I've bought a few donated houses from non-profits and the reason they were selling was because gifted houses are not free.

Steve Babiak · Answer

It's part of an estate, so estate and inheritance taxes must be paid ...

As Bill Gulley hinted, there are "NEFF" properties; NEFF = Not Even For Free!

Ramon Jenkins · Answer

@Sue Loomans

Maybe also check to make sure there no code...code violations you
would be responsible for “before you spend any money on
the rehab “

I personally can’t wait to see how this turns out – law fees, 
title Company, insurance, etc

Sue Loomans · Answer

K. Marie:  Thanks for these tips.  I had a conversation with my attorney this afternoon and passed along some of the considerations I received here on BP.  He seemed familiar with what needed to be done to comply with Wisconsin law, and I feel better now letting a pro handle this vs. something DIY.

I'm eager to learn more about the process and legal requirements for donated property, so this should be a good opportunity for that.

I will be happy to share how things turn out.

Account Closed · Answer

Sue:  if the house is a trust, IMO you really need to put a contract or agreement into  escrow and then have escrow and title execute the transfer.  You can't just get a deed from the trustee.  There are affidavits and verifications and certifications of trusts that title may require.  I strongly advise against any DIY transfer or paperwork on this one.

Best of success with it and please post back and let us know how it works it out.

Sue Loomans · Answer

Thanks so much for all of the information in these replies.  It gives me a better foundation for conversations with my attorney.

To fill in some of the gaps:  the estate is in a Trust. One of the children of the deceased parents who owned the house is the Trustee.

We've had some "free" offers of houses in the past. All fell into the NEFF category.  This is the only one that seems worth pursuing.  But since we've only executed purchases in the past, how to handle a donation is new territory.

Bill Gulley · Answer

I have an estate and I'm not dead yet, so is this a living estate or is there a probated transfer by a Will or Trust?

Before we clog the issue with speculation over the word "estate" off on tangents.

Generally, non-profits already know what to do with donations of real or personal property, seems this is about RE issues....it's not a sale, it's a donation....  :)

Account Closed · Answer

Sue:  I see now that your company is for profit.  Gifting property has restrictions and tax consequences for the estate or heirs. Your sellers may be better served by executing a purchase contract with you for a consideration amount, say $1000.00.  That way you can put the contract into escrow, have escrow do the proper paper work and you can purchase title insurance at that time. Since we don't not know if the estate is selling or the heirs are selling, escrow will make sure to get the right signatures on the right docs.  Your re-sale or re-finance will be a lot smoother if you do that upon acquiring the property.

IMO, you should have something in writing/signed by the sellers that says they were advised to seek professional legal and tax advice.  They probably won't do so, but at least they were advised.  Since you are not a non-profit, that should be fully disclosed and acknowledged in your purchase contract as well.

I'm not attorney and the above is not legal advice.

Bill Gulley · Answer

LOL, NEFF!

Estate taxes, if any, are the liability of the estate after death, prior to disposition of assets or released for payment, being a non-profit you're not concerned with gift taxes. That's why you need a title search to ensure clear title and that nothing arises in the future.

I'd say your biggest concern will be environmental issues, lead paint, asbestos, or other contaminations that you'll likely have in older homes and in that price range, probably updates were limited if any were made.  :)

What to do with a $0 "free" house?

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