Seattle Real Estate News

General Rule

Adding or removing a person from title during a refinance can trigger Washington Real Estate Excise Tax (REET) review. Whether REET applies depends on the specific facts of the transaction, not merely the deed language.

WAC 458-61A-215 Co-Signer Exemption

A REET exemption may apply when:

• A person is added to title solely as a co-signer or co-borrower to help qualify for financing.
• The co-signer contributes no purchase funds.
• The co-signer receives no consideration.
• The primary borrower makes all mortgage payments.
• The co-signer is not a true purchaser or beneficial owner.
• The co-signer is later removed from title after refinancing or payoff.

Important Note

The regulation's example uses parents as co-signers, but the exemption is based primarily on the purpose of the transfer and lack of consideration, not necessarily blood relationship.

Lower-Risk Scenario

Borrower A owns the property and adds Co-Signer B solely to qualify for financing. Co-Signer B contributes no funds, receives no consideration, and makes no mortgage payments. After refinancing or payoff, Co-Signer B is removed from title.

This fact pattern may support a REET exemption if properly documented.

Higher-Risk Scenario

Borrower A removes Co-Signer B from title and simultaneously adds Borrower C to title as part of a refinance.

This fact pattern does not fit squarely within the co-signer examples and may be viewed as a transfer of ownership interest. REET review is likely, and REET may be assessed depending on the circumstances.

Documentation to Support an Exemption

• Signed narrative explaining the transaction.
• Affidavit from all parties.
• Evidence showing who made mortgage payments.
• Evidence that the co-signer contributed no purchase funds.
• Evidence that no consideration was paid.
• Documentation showing the co-signer was added solely for financing purposes.

Practical Rule of Thumb

• Remove co-signer only: Potential exemption available.
• Add co-signer only for financing purposes: Potential exemption available.
• Remove one person and add a different person at the same closing: Expect REET review and possible REET assessment unless escrow or the Washington Department of Revenue approves an exemption.

Key Takeaway

The critical issue is generally not whether the parties are related, but whether the transaction represents a true transfer of ownership interest and whether any consideration is being exchanged.