Thank you for your responses. We fully intend to file the gift tax return, the gift was indeed done this year. Unfortunately, we are a long way from being concerned about the $5 million gift limitation....the home is not likely to appreciate, but it has been appraised 50k under the original sales price paid in 2003 by the original owners, so I guess the potential exists for an increase in value. We do realize that if we make any contributions torwards expenses, it will not be tax deductible.
I don't wish to burden everyone with pages of information about how we ended up here. My uncertaintly came from whether or not referencing the sum of 57k on the deed was even legal since it was a gift, could it help establish an interest, or would it merely complicate the tax implications and legal proceedings following her death (not to protect us from her). She intends to retire in a few years and wants us to purchase the home at that time. We just want to be as certain as we can that an option exists for us to remain in the home, should she pass before. We have ZERO concerns about her intentions, so please don't be concerned for our well being regarding malicious behavior on her part. We fully intended to consult legal council regarding additional protections, but I am beginning to feel that it should be done prior to submitting the quit claim. We really do appreciate all the opinions about how to prepare our situation for the unexpected, since ideas and thoughts expressed here may be solutions not thought of by others.
In response to adjuster jack,
I am not making assertions as to the chain of events that will occur, I am making "assumptions" and hopefully a plan towards prevention. You stated "Although I am sure you believe otherwise." as if we have some notion that we are in a better legal position than we are should something occur. It is fully recognized that a gift gives us absolutely no rights of ownership beyond being a tenant, and we realize her entitlements as sole owner. Assuming she is alive, well, and retired in a few years, an assumption of the loan should be the most viable option and all ends well. She has no intentions of leaving the residence (or removing us from it) until she reaches retirement age, but our kids love it here, we love it, and we desire the option to stay if she were to depart before that takes place. This is not something we are pursuing on our own, she is just as concerned about the possibilities and wants to be certain of the outcome.
For sake of clarification on the assumption of mortgages, this was taken directly from HUDs FAQs on hud.gov...
"85. ARE FHA LOANS ASSUMABLE?
Yes. You can assume an existing FHA-insured loan, or, if you are the one deciding to sell, allow a buyer to assume yours. Assuming a loan can be very beneficial, since the process is streamlined and less expensive compared to that for a new loan. Also, assuming a loan can often result in a lower interest rate. The application process consists basically of a credit check and no property appraisal is required. And you must demonstrate that you have enough income to support the mortgage loan. In this way, qualifying to assume a loan is similar to the qualification requirements for a new one."
Thanks again to all who have taken the time to respond !