| Advice needed: bought house together with son |
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Dutchess
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| Advice needed: bought house together with son |
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This is the situation I need council on:
I live in Europe (mother 90) 8 months and 4 months in the states (grand/children)
In December I bought a house, well.. "we" bought a house with Mother-in-law apartment
I put down 107.000 (inheritance) my son 10.000; the mortgage (168.000) is in my name; and my daughter in law (breadwinner) is going to pay the mortgage
Then they put in another 10.000 for appliances and floors. I bought tons of stuff but that does not count: carpets, furniture. candles, food, etc
The basement apartment was to be mine but my son decided to rent it out to his friend for 5000/year (a pittance) to ease their financial stress. I have the master bedroom while here (4 months in the winter).
The thought with which we entered this agreement was that the basement apartment was mine, they would pay the mortgage and at the end (selling the house f.i.) we would split the gain according to input
And here lies the problem...
How do you calculate input? They want to calculate their interest on the mortgage and figure that in 6 years we're even...
And besides: they have the use of the house, plus renting out my apartment and keeping the money (putting it partially toward the principal amount). Do you calculate utilities in this? upkeep? (and what if it is for damages through carelessness?)
I want a legal contract but it is all muddled for me, cannot even begin to understand how to figure this...
Help lease...
I am returning to europe in 4 weeks and I would like a legal document in 3 for a win/win situation,,
Thank you for your time and consideration!
Margaret
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Wed Feb 09, 2011 5:26 am |
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coaster
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Oh. Margaret. Sigh.
How well fixed are you?
My advice to you is to write it off as a gift and forget about it. If you can. Enjoy the time you have left. Trying to get all parties in line on this one is going to ruin it. Deduct it from what might have been in the will.
You can't write a contract retroactively.
And it's very bad financial advice to lend large sums of money to close relatives.
It's very apparent, even from your rose-tinted view as mother and grandmother, that these weasels (sorry) are in it only for themselves. They're adults. No reflection on you.
I'm very sorry. This is a mess. Walk away from it.
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Wed Feb 09, 2011 7:02 am |
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Dutchess
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dear DEAR Wisconsin...(best friend Mary has cabin at five?lakes)... I am NOT well off... this was unexpected inheritance, ONly have 60.000 in retirement savings account. Apt (rental) in Holland will have to go in a few years...
sigh indeed...
My daughter in law takes the bull by the horns and has suggested we all think what we want and why by sunday..
ll is not lost in the relationship field (i have lived far worse)
keep thinking
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Wed Feb 09, 2011 7:07 am |
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coaster
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OK.
I hope it works out for you.
My experience has been otherwise; that's what I base my advice on.
Since you can't walk away, the next best thing you can do is retain disinterested legal counsel to represent your interests.
Keep us updated.
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Wed Feb 09, 2011 7:09 am |
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MrPolarZero
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Probably, you can seek advice from a housing lawyer. He can also help you in preparing the necessary contract./ however, you need to discuss this with your son and his family to better settles things over
Annuities
Best Life Insurance
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Thu Feb 10, 2011 4:12 am |
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Dutchess
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Agreed on discussing... we;e checking into that.
things are getting heated here and sad...
We do want a three way co-ownership. But their thinking in that in 7 years they will have paid equal to my 107.000 down payment and at that time we're even...
Does not seem right to me but I cannot explain it, not even to myself...
anyone good at math?
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Thu Feb 10, 2011 7:07 am |
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coaster
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They're probably not taking financing into account, thinking that their payments are going 100% to their share of the principal.
There should also be consideration to you for the use of the house. A market rate for rent, prorated for the equity share of the mortgage payment would be one way.
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Thu Feb 10, 2011 7:21 am |
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Dutchess
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they are thinking indeed that their entire payment (principal plus interest) will add up to equal my down-payment of 107,000 in less than 7 years and that we're then equally invested...
we went into this very positively, and matters went quickly (from mortgage in all names, to just mine) and we were naive is thinking it would be OK...
and yes, i hear you about the use of house...
Let me add another item into the puddle... I (voluntarily) buy all the groceries, wine, gasoline for both cars, carwashes, extra's, items needed for the house etc, MUCH more than $ 1000 (thousand) a month easily (December and January especially)
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Thu Feb 10, 2011 8:01 am |
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coaster
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Margaret - I suspect you're considerably more competent in this affair than you allowed in your first post. 
Yet - the benefit of legal counsel in such a complicated case cannot be understated.
Best wishes, good luck, and keep us posted...... 
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Thu Feb 10, 2011 4:17 pm |
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Dutchess
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another sleepless night.. his one also because of cold feet,...
From a retired professional turned biological farmer good friend (obviously) in AUssie land, this just came in, how does this look to you?
Take the value of the property at the date of purchase and break it up into $10,000 shares.
2. Everyone who contributed money to the purchase price gets an “equity” share of the property. This should not include fixtures and furniture.
3. As you are the name on the mortgage and others are funding the repayments you need to ensure there is a written contract regarding the repayments and what to do in the event that payments are not made. You may want to consider income or repayment protection insurance.
Operational Shares
1. The interest, appliances, furniture and fixtures should also be valued and bundled up into shares.
2. For the interest take the annual amount and divide it by three. This may change each year so be sure to budget a 5% contingency.
3. For all the other things that have been purchased you can group together and work out the percentage each of you will / have paid. IE when you live there you pay more and when you are not living there you pay less. Or you can gift them your shares.
4. Whatever the case it is important you all agree on a “value” on the contributions you made to setting up the house and I would recommend that if you want to “gift” them something it is done as an share and agreement rather than discussion and something over time (as things change)
With regard to renting the basement apartment $5,000 a year is less than $100 per week and that seems low to me too. Have it professionally valued and agree a fair rent – maybe including utilities and insurance.
Once you have this figure it then becomes “income” and can be used to pay equity shares (reduce principle) or operational shares (running costs of the house). Whatever you agree on.
They still may want to rent to their friend for $5,000 and that is fine so long as the difference between the rent they are charging and the fair value rent is made up by them. Or it may be an issue you can be flexible on.
It makes sense to put the money to reduce the principle and if you have already made a share agreement then the contributions they make adds to their share equity. (assuming that is what you want). In the future if you sell then any profit is split - either base on share equity or a three way split- or whatever you agree on.
Assuming you go for the share option described above then the interest on the repayments would be included in the operational share equity. It is difficult to include it in the equity shares but it can be done (it just takes math)
Utilities, running costs and maintenance should not be included in the equity shares. It is best to do them separately or add them into the operational shares via a three way split. Or some other agreement.
You will need insurance for the house and I would suggest a house and contents policy that covers both accidental damage (from the renter) and fire flood etc. Tennant insurance?
So in summary you need
* To agree the equity shares each of you have
* Agree the operational figures for running the house – including interest – and the amount people are going to contribute.
* You need a lease agreement between you and the friend (you may also need to check with your lender / bank to make sure you can rent your mortgaged property unless you have a mortgage contract that allows this)
* And insurance – Household, Income and repayment protection.
Hopefully the above helps you find a win win situation for everyone. Remember just stick to the facts – don’t get emotional and be sure of what you need / want to have as an end result. Remember that things change over time so it is important to have things set out on paper at the start and agreed.
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Thu Feb 10, 2011 4:28 pm |
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coaster
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I didn't see anything in there about consideration for their occupancy. (Or maybe that's taken into account in his mention of "contributions", but that's too vague and too "voluntary") In terms of the value of each person's share, the occupancy is an extra value for the person(s) occupying and a reduction for those not occupying. In other words, in terms of the whole, it's an expense (outgo) which should be offset by rent (income). They pay rent at market rate. Of course, since they have a share, they are paying themselves according to the percentage of their share. Doing it this way, the expenses of operating the home can be accrued by the whole, and automatically, through the shares, allocated to the individual interests, and likewise with the net income. And it doesn't make any difference who occupies. Make one party the lease-holder paying rent for the entire and then any other party occupying a portion pays them rent as a sub-lessor.
Other than that, his plan is about the way I'd do it.
My personal opinion, is that the chances of getting so many parties with differing self-interests to agree to it are slim, and slimmer in the time frame allowed. But .... good luck with it and I'd like to know how it turns out.
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Thu Feb 10, 2011 4:39 pm |
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Dutchess
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just received text from my daughter-in-law... NO GO on this at all. and to look into Tenant Occupancy and co-ownership with wrap around financing
what can you advise?
It is difficult to leave emotions out... it feels like we have entered a warzone..
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Thu Feb 10, 2011 5:20 pm |
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oldguy
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quote:
They want to calculate their interest on the mortgage and figure that in 6 years we're even...
Remember, 6 years from now, the mortgage will be will have 24 years remaining and the balance will still be >$150,000. So the ~$1200/m that Son is paying now is going mostly to interest, insurance, and property tax, very little goes to principal (about $18,000 over 6 years).
Two posilbilities - the DIL simply doesn't understand math/finance and doesn't realize what is happening. Or, DIL knows exactly what is going on and plans to cheat you out of the entire inheritance PLUS leave you stuck with a $150,000 loan. (I hope it is the former.)
IMO, first go to a lawyer by yourself, tell the story, show your paperwork, and learn what needs to be done - in your specific state and area, Then ask the kids to meet with you & the lawyer. The lawyer will know how to legally execute the remedy if Son & DIL refuse, you won't have to do it.
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Thu Feb 10, 2011 6:35 pm |
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Dutchess
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their suggestion:
"We need a Real Estate attorney well versed in Tenancy in Common/Co-Ownership to create the following for us:
A Tenancy In Common/Co-Ownership contract for the house and with wrap-around financing where Mark obtains a loan from Margaret in the amount of the mortgage for the property
What the contract will do. Make us Co-Owners to the property 2544 Flamingo in the following arrangement:
Mark is FULL owner of the upstairs, patio, determined parking spaces, determined garage space, determined storage space, determined yard space.
Margaret is FULL owner of the downstairs, determined parking space, determined garage space, determined storage space, determined yard space.
Mark will have full ownership of his described property and can leave it to or sale it to whomever he decides. Heirs will be able to assume full responsibility of any unpaid mortgage in the event of an untimely death.
Margaret will have full ownership of her described property and can leave it or sale it to whomever she decides.
Each owner will be responsible for the Individual expenses include maintenance and improvements to unit interiors, personal property insurance and separately metered utilities.
Shared responsibilities will include improvements to common areas, and shared utilities like water and trash removal, etc.
Owner-occupants may deduct their own mortgage interest and property taxes, and often may avoid capital gains tax on resale.
Additional things I found to think about:
Or Tenancy in Common until death and then surviving tenant has First Option to buy out deceased heirs, prior to heirs receiving any right to property, OR, upon sale of property of survigin tenant, at which time heirs of deceased are entitled to dollar amount equal to dollar amount contributed to property by deceased.
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Division of the property into "individual" and "group" spheres with regard to usage rights and maintenance responsibilities;
• Description of the owners' financial obligations including initial deposits, reserve accounts, mortgages (if shared), taxes, common area maintenance and other expenses;
• Formulas for determining each owners' monthly payment in advance and periodically adjusting the amount;
• Management of the property including accounts receivable, accounts payable, regular reporting, maintenance and janitorial;
• Rules governing usage of the property by the owners (e.g. pets, noise, floor covering) and enforcement provisions;
• Meeting and decision making procedures;
• Provisions defining when a default has occurred and describing remedies;
• Policy in the event of death or bankruptcy;
• Sale of interests, group approval of prospective purchasers, and rights of first refusal; and
• Dispute resolution."
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Thu Feb 10, 2011 6:51 pm |
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oldguy
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quote:
their suggestion:
Excellent!
That gets everyone into the lawyer's office. The fact that the suggestions are overkills and adversarial won't matter, the lawyer will calm things down and point out the usual terms & conditions of a joint ownership.
You may, or may not, want Tenancy in Common. That means that your half can be willed to someone else, their half can be willed to anyone that they choose. You might prefer Joint Tenancy With Right of Survivorship - upon the death of a co-owner the surviving co-owner inherits it. (that also depends on the state, some have JTWRS, others do not).
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Thu Feb 10, 2011 7:28 pm |
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