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My neighbor wants to tranfer a rental property back to her parents that her parents bought for her five years ago. The reason is that she would like to free herself from the liability of the mortgage. Her parents are willing to take it back and assume the outstanding balance.

Should there be a purchase and sale agreement as the bank is requesting them to do. I thought it should have been a simple morgage assumption.

Anyone with any experience / knowledge on this type of a transaction?

What are the implications for Canadian Capital gains tax?
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Don't know abt Canada, but in the US (informal) mortgage assumption was done away with long back.

In all motgages there is a 'Due on sale' clause that states if a prop xfer ownership, the mort. co. has a right to call the loan.

Note: the wording says "right" to call the loan.

In the US what I would do is simply deed the property over. 99% (if not 100%) of the time the mort. co. will not call the loan as it is not in default. They have their hands full wil already defaulting loans.

Note: in the above scenario, the neighbor and not the parents will still be liable for the loan even though the parents are making the pmts.

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