The Risks of Understating the Price on the Title Deed

Understating the sale price on the title deed to reduce the title deed fee was a common practice for many years. Today, because of bank records, mortgage appraisal reports, and electronic data cross-matching, the chance of this being detected is very high, and the consequences can cost far more than the small saving on the fee.

Tax risks

• The shortfall in the title deed fee can be claimed from both the buyer and the seller, along with late payment interest and a tax loss penalty.
• For the seller, capital gains tax on a sale within five years ends up miscalculated.
• For the buyer, because the cost basis will appear lower when the home is sold later, a sale before five years are up can trigger a higher capital gains tax.

Legal risks

• If the sale is later voided (for example through a title annulment lawsuit, a defect, or fraud), facing the claim that the amount the buyer can recover is only the understated price on the title deed.
• The understated title deed value being used as the basis in expropriation or similar situations.
• In transactions financed with a mortgage, the gap between the appraisal value and the price on the title deed drawing scrutiny.

The correct approach

Declare the real sale price and make the payment through a bank with a clear description. If you want to reduce the fee burden, do it by negotiating how the fee is split between the parties, not by understating the price.