My sister and I will inherit a property from our mother worth (according to a recent appraisal) $515k, which currently still has a mortgage of about $90k. I want the property, she does not, and she wants to begin the process where I buy her out. There are a few wrinkles to this situation as outlined below.
Our mother is approaching 90 years old and still lives in the property, and has “life tenancy”, although my sister and I have effectively been the owners since 2011 when this life estate was created. Mom is in okay health but her age has caught up with her, and obviously things could change fast.
My wife and I also live in this property with our 2 small children. We have been here since July 2020 - moved in during the pandemic and basically decided to stay instead of returning to the VHCOL city that is about 60 miles away.
The mortgage that remains on the property is in mom's name and is *floating rate* - with an interest rate of about 7%. (Yes, it was a major mistake to not refinance a few years ago - not to mention mom and our late father taking out an ARM mortgage in the first place in 2004! - but that is water under the bridge at this point) Payments on the mortgage are now roughly $1100 per month, and the principal has been getting down paid aggressively over the last 4 years. Usually pay $3k per month (drawn primarily from our mother’s pension) so expect the full mortgage could be paid within 3 years or so.
My wife and I contribute towards the mortgage at ~$1000 per month and pay most utilities/food, in addition to being the main caretaker for my increasingly-frail mother. Living here is certainly not “free”, not to mention the challenges of living with 2 kids and an 89 year old, but fair to say we indeed have a lower cost of living / higher savings rate as a result.
My sister once considered the house as a bit of a handyman's special, had the chance for many years to move in herself, but decided not to. We instead chose to try realizing the home's true value. Since our arrival we have put >$100k (and a lot of sweat equity) into the property to do many long-overdue repairs and undertake some refurbishments to make the home more family-friendly. This has no doubt helped to increase the home value which would have been lower if these updates not been made.
We had initially agreed to sort this out whenever the day comes when mom (god forbid) passes, but my sister wants to access to her share of the home’s equity now. That is why the appraisal was done recently. I am happy to begin the process, and in buying her out, we have proposed subtracting the outstanding mortgage from the appraised value [($515k-90K) / 2] such that our respective shares are currently $212,500 - and potentially more as the outstanding mortgage continues to be paid off. My sister however believes that since we already live in the property, she should be bought out for the full $257,500 asap (ie $515k/2) - ie the mortgage is no longer her concern.
I want to keep things reasonably cordial here (and ultimately we are haggling over “just” $45k), but she wants to be paid for her full share of equity, but none of the debt still attached to the property. I disagree, because (in my view) she cannot simply ignore a debt on a property she technically partly owns, while also benefiting from the refurbishments we have done (for which we are not asking any repayment).
Who is correct? Is there anything else I ought to be thinking of at this stage?
We have yet to discuss the repayment plan but just need to settle on a number for the moment. We will then also begin drawing up paperwork with lawyers (including amending Mom's will)
Thank you!
Our mother is approaching 90 years old and still lives in the property, and has “life tenancy”, although my sister and I have effectively been the owners since 2011 when this life estate was created. Mom is in okay health but her age has caught up with her, and obviously things could change fast.
My wife and I also live in this property with our 2 small children. We have been here since July 2020 - moved in during the pandemic and basically decided to stay instead of returning to the VHCOL city that is about 60 miles away.
The mortgage that remains on the property is in mom's name and is *floating rate* - with an interest rate of about 7%. (Yes, it was a major mistake to not refinance a few years ago - not to mention mom and our late father taking out an ARM mortgage in the first place in 2004! - but that is water under the bridge at this point) Payments on the mortgage are now roughly $1100 per month, and the principal has been getting down paid aggressively over the last 4 years. Usually pay $3k per month (drawn primarily from our mother’s pension) so expect the full mortgage could be paid within 3 years or so.
My wife and I contribute towards the mortgage at ~$1000 per month and pay most utilities/food, in addition to being the main caretaker for my increasingly-frail mother. Living here is certainly not “free”, not to mention the challenges of living with 2 kids and an 89 year old, but fair to say we indeed have a lower cost of living / higher savings rate as a result.
My sister once considered the house as a bit of a handyman's special, had the chance for many years to move in herself, but decided not to. We instead chose to try realizing the home's true value. Since our arrival we have put >$100k (and a lot of sweat equity) into the property to do many long-overdue repairs and undertake some refurbishments to make the home more family-friendly. This has no doubt helped to increase the home value which would have been lower if these updates not been made.
We had initially agreed to sort this out whenever the day comes when mom (god forbid) passes, but my sister wants to access to her share of the home’s equity now. That is why the appraisal was done recently. I am happy to begin the process, and in buying her out, we have proposed subtracting the outstanding mortgage from the appraised value [($515k-90K) / 2] such that our respective shares are currently $212,500 - and potentially more as the outstanding mortgage continues to be paid off. My sister however believes that since we already live in the property, she should be bought out for the full $257,500 asap (ie $515k/2) - ie the mortgage is no longer her concern.
I want to keep things reasonably cordial here (and ultimately we are haggling over “just” $45k), but she wants to be paid for her full share of equity, but none of the debt still attached to the property. I disagree, because (in my view) she cannot simply ignore a debt on a property she technically partly owns, while also benefiting from the refurbishments we have done (for which we are not asking any repayment).
Who is correct? Is there anything else I ought to be thinking of at this stage?
We have yet to discuss the repayment plan but just need to settle on a number for the moment. We will then also begin drawing up paperwork with lawyers (including amending Mom's will)
Thank you!
Statistics: Posted by Stick5vw — Tue Apr 09, 2024 6:03 pm — Replies 24 — Views 1067