Mom died, no will, left us $500k mortgage, what next?
February 24, 2012 12:06 PM Subscribe
Mom died, left us a 500k mortgage,, no will, no bad blood between us two audit siblings. Some standard questions. What next?
[Anonymous since I'm discussing siblings financial situation.]
My mom died suddenly this month without a will, but with a pretty simple estate. She lived in NY, had her finances pretty much in order, though has a 500k 6.9% mortgage on the house we grew up in]. Maybe $100-175k in life insurance and saving.
I have one sibling. I'm on the west coast, sibling lives a state away from my mom's house but returns a couple times a month for family/friends.
The house is and old 50s middle class house in the Hamptons, likely can be an okay income property with minimal work (some paint, yard work and some minimal plumbing). similar homes rent for $2500/month for year round rental, maybe much more in the summer season.
We have a lawyer who is giving good advice on estate issues like taxes, transfer, etc.., so I think we are okay there.
We will want to keep the house and split it 50/50.
We need to refinance since we can hopefully get something around 4% or lower. 500k left on the mortgage. Monthly payment is around 3200$ We'll likely be able to get a little over $100k due to life insurance and savings after paying her 1099 taxes that are due to 2011 and 2012.
1) What things should we be looking at in order to get the best deal on a refi? I have great credit and great income ($160k/year), my sibling lhas bad credit, no savings but a good job. (90k/year but head of family, spouse and 2 step kids).
2) What are good mechanisms for handling a split of a 500k mortgage where one owner may be able to contribute more money over time to best represent final ownership split? Other sibling may be able to contribute some sweat equity from time to time which we would want to put a value on.
3) What am I forgetting or should be doing now to make things easier for everyone?
My sibling may wish to live in the house at some time, but is unlikely to be able to buy me out. Obviously don't want this to be an issue, but what are some mechanisms to allow this without causing resentment (e.g. I would want to avoid anything like "You are now my brother/landlord and are profiting off mom's death")
Thanks for the time in advance (and call your parents and make sure they actually did their will and have life insurance to pay the mortgage!)
[Anonymous since I'm discussing siblings financial situation.]
My mom died suddenly this month without a will, but with a pretty simple estate. She lived in NY, had her finances pretty much in order, though has a 500k 6.9% mortgage on the house we grew up in]. Maybe $100-175k in life insurance and saving.
I have one sibling. I'm on the west coast, sibling lives a state away from my mom's house but returns a couple times a month for family/friends.
The house is and old 50s middle class house in the Hamptons, likely can be an okay income property with minimal work (some paint, yard work and some minimal plumbing). similar homes rent for $2500/month for year round rental, maybe much more in the summer season.
We have a lawyer who is giving good advice on estate issues like taxes, transfer, etc.., so I think we are okay there.
We will want to keep the house and split it 50/50.
We need to refinance since we can hopefully get something around 4% or lower. 500k left on the mortgage. Monthly payment is around 3200$ We'll likely be able to get a little over $100k due to life insurance and savings after paying her 1099 taxes that are due to 2011 and 2012.
1) What things should we be looking at in order to get the best deal on a refi? I have great credit and great income ($160k/year), my sibling lhas bad credit, no savings but a good job. (90k/year but head of family, spouse and 2 step kids).
2) What are good mechanisms for handling a split of a 500k mortgage where one owner may be able to contribute more money over time to best represent final ownership split? Other sibling may be able to contribute some sweat equity from time to time which we would want to put a value on.
3) What am I forgetting or should be doing now to make things easier for everyone?
My sibling may wish to live in the house at some time, but is unlikely to be able to buy me out. Obviously don't want this to be an issue, but what are some mechanisms to allow this without causing resentment (e.g. I would want to avoid anything like "You are now my brother/landlord and are profiting off mom's death")
Thanks for the time in advance (and call your parents and make sure they actually did their will and have life insurance to pay the mortgage!)
My gut would be telling me to sell it for whatever you can reasonably get and divide the money along with the rest of the estate, which mostly sounds liquid.
You don't want to co-own real estate, esp. with a strapped sibling ($90K doesn't sound that bad in my part of the country, but I realize other parts of the world have obscene housing expense compared to mine). The numbers you related sound like the house would make you no net income at all, once rental agent and repairs are factored in. A 1950s era house is going to be constantly having repairs and other issuse that cost $$$. You'll end up bearing the brunt of the expenses and headaches.
That sounds like a huge mortgage for a house of that age that your parents owned a long time. You might not even have any equity in it.
Not related to what you asked, but don't forget as the credit card people etc. come out of the woodwork; if you didn't sign up for the debt, you can't be made to pay for it. If your mother had a credit card balance, it may be expedient to pay them out of cash on hand if possible, but do NOT put yourself out financially to "settle debts." Collectors can be quite vicious about these kind of things.
posted by randomkeystrike at 12:41 PM on February 24, 2012 [6 favorites]
You don't want to co-own real estate, esp. with a strapped sibling ($90K doesn't sound that bad in my part of the country, but I realize other parts of the world have obscene housing expense compared to mine). The numbers you related sound like the house would make you no net income at all, once rental agent and repairs are factored in. A 1950s era house is going to be constantly having repairs and other issuse that cost $$$. You'll end up bearing the brunt of the expenses and headaches.
That sounds like a huge mortgage for a house of that age that your parents owned a long time. You might not even have any equity in it.
Not related to what you asked, but don't forget as the credit card people etc. come out of the woodwork; if you didn't sign up for the debt, you can't be made to pay for it. If your mother had a credit card balance, it may be expedient to pay them out of cash on hand if possible, but do NOT put yourself out financially to "settle debts." Collectors can be quite vicious about these kind of things.
posted by randomkeystrike at 12:41 PM on February 24, 2012 [6 favorites]
You don't mention what the house is worth. If you have plenty of equity, refinancing won't be a problem. It the house is under water, that's a problem.
If you go forward with the refinance, for your #2 question, I would just keep good track of the payments each of you make over time. When it comes time to sell, figure out what percentage each of you has put into it, and then divide the proceeds accordingly.
posted by spilon at 12:47 PM on February 24, 2012
If you go forward with the refinance, for your #2 question, I would just keep good track of the payments each of you make over time. When it comes time to sell, figure out what percentage each of you has put into it, and then divide the proceeds accordingly.
posted by spilon at 12:47 PM on February 24, 2012
Look into a Real Estate Investment Trust, a private trust, or as an LLC, or some other entity which holds the property for both your benefit, particularly if you intend to rent it out and will contributing unequal funding to the mortgage. Your very best bet is to tell your present attorney you'd like solid advice on how to hold onto the house jointly. If your present attorney does not feel like she can advise you properly on how to re-title the house and how to structure ownership and financing, get a referral to someone who can.
My mom and one of her many siblings just did this with their mother's house.
posted by crush-onastick at 1:06 PM on February 24, 2012 [1 favorite]
My mom and one of her many siblings just did this with their mother's house.
posted by crush-onastick at 1:06 PM on February 24, 2012 [1 favorite]
I think you should let your sibling buy you out. It would be easier to figure out if it was realistic if we knew what the house was worth. The rental income won't cover the carrying/maintenance costs so you will be losing money each month. If the house is worth $800,00 you have $300,000 of equity to split. So each of you are looking at getting $200,000 (including the lowest life insurance estimate). So your sibling needs to finance $600,000, that is not doable on $90,000. But will selling their current house give them any equity? Would you be okay with them getting a reasonable mortgage on the house and you holding a second mortgage (drawn up by a lawyer) that they pay a manageable amount to you each month?
What is the long term plan with your current setup? Will they ever be able to buy you out? Do you get compensated for the money you will have lost over the years? Your current plan seems to have too many variables, too many places things could go wrong rather than just letting you walk away with your equity and a guarenteed income stream for the next decade or so and keeping the house in the family without draining either of your bank accounts.
posted by saucysault at 1:22 PM on February 24, 2012 [1 favorite]
What is the long term plan with your current setup? Will they ever be able to buy you out? Do you get compensated for the money you will have lost over the years? Your current plan seems to have too many variables, too many places things could go wrong rather than just letting you walk away with your equity and a guarenteed income stream for the next decade or so and keeping the house in the family without draining either of your bank accounts.
posted by saucysault at 1:22 PM on February 24, 2012 [1 favorite]
^is my math right? I think I did something wrong there.
posted by saucysault at 1:26 PM on February 24, 2012
posted by saucysault at 1:26 PM on February 24, 2012
My grandmother left her home to my mother a little over 10 years ago. That was owned outright but there's some issues you'll have in common.
One, things are very different when a property isn't your home. If your state has homestead exemptions on property taxes you won't be able to take advantage of them, increasing the cost of ownership. Some states, like my mother's Florida, limits property tax increases for homes as well. She now pays aprox 5x more in taxes on that inherited house than she does on their primary home... which is valued about 4x higher than my grandmother's old house.
This probably isn't a big deal in valuation right now since you likely 'reset' to current levels when you took possession. The issue will be whether rates rise significantly in the years you own it.
You'll also have challenges with a mortgage. Lenders are more particular about non-resident houses and the interest rates tend not to be as good. I think you're still in the clear on the interest cost being deductible though you should double-check that. If I pulled a number out of my lower torso, assuming that 500k mortgage is less than 80% of the valuation of the house, you can probably do around 5% interest.
I guess my point here is - don't under-estimate the cost of keeping a home you don't live in. As you describe it you're already going to be spending more in mortgage payments than you can take in assuming no lapses in rental and 0 upkeep costs. This has the potential go get away from you by leaps and bounds.
posted by phearlez at 2:20 PM on February 24, 2012
One, things are very different when a property isn't your home. If your state has homestead exemptions on property taxes you won't be able to take advantage of them, increasing the cost of ownership. Some states, like my mother's Florida, limits property tax increases for homes as well. She now pays aprox 5x more in taxes on that inherited house than she does on their primary home... which is valued about 4x higher than my grandmother's old house.
This probably isn't a big deal in valuation right now since you likely 'reset' to current levels when you took possession. The issue will be whether rates rise significantly in the years you own it.
You'll also have challenges with a mortgage. Lenders are more particular about non-resident houses and the interest rates tend not to be as good. I think you're still in the clear on the interest cost being deductible though you should double-check that. If I pulled a number out of my lower torso, assuming that 500k mortgage is less than 80% of the valuation of the house, you can probably do around 5% interest.
I guess my point here is - don't under-estimate the cost of keeping a home you don't live in. As you describe it you're already going to be spending more in mortgage payments than you can take in assuming no lapses in rental and 0 upkeep costs. This has the potential go get away from you by leaps and bounds.
posted by phearlez at 2:20 PM on February 24, 2012
If you and sibling both agree to throw the entire 100K in cash at the house's current mortgage now, that might bring your payments down significantly, and/or make it easier to refinance the remaining amount.
But as other said above, making rental property profitable requires lots of hands on work. Being even an hour away means you'll have to hire someone else to deal with emergencies.
Without knowing the full picture, it's hard to give advice, but I'm leaning toward sell the property and invest the cash for your retirements.
posted by bilabial at 2:40 PM on February 24, 2012
But as other said above, making rental property profitable requires lots of hands on work. Being even an hour away means you'll have to hire someone else to deal with emergencies.
Without knowing the full picture, it's hard to give advice, but I'm leaning toward sell the property and invest the cash for your retirements.
posted by bilabial at 2:40 PM on February 24, 2012
The more I think about it, the less likely it seems that your sibling would be able to maintain their current bills (including housing a family of four) AND pay half of a mortgage of $400,000-500,000 AND pay to repair/maintain a rental property (and the taxes on the rental income, property taxes, and be unable to access any other credit).
I think your choices are to sell it or let your sibling buy you out over an extended period. I'm sorry for your joint loss and having to make these decisions while still grieving.
posted by saucysault at 3:56 PM on February 24, 2012
I think your choices are to sell it or let your sibling buy you out over an extended period. I'm sorry for your joint loss and having to make these decisions while still grieving.
posted by saucysault at 3:56 PM on February 24, 2012
If you had the house equity in your bank right now, would you choose to buy half a house across the country? Home ownership is a pain, tenants are careless, and joint ownership often causes strife, esp. if one half-owner lives in it and is bad about paying rent to the other owner who is financially stable. If you keep it, set it up really well to guard against strife. People with bad credit may have good intentions, but be bad at executing them. It's not unreasonable to sell it and help your sibling buy a different house, even if it means a different split. Or, cash it all out, and reserve some of your part to help your sib out in the future.
I'm sorry to hear about your Mom.
posted by theora55 at 4:44 PM on February 24, 2012
I'm sorry to hear about your Mom.
posted by theora55 at 4:44 PM on February 24, 2012
Hi, I sort of co-own a family property that is currently a rental property. No mortgage, and it's only a hour away, but the basic mechanics are the same.
You need an attorney who can set all this up as some kind of separate legal entity (ours is a family trust) that owns the property and maintains the financial side. In our case the price of keeping the property in the family is that I can't take any money out of the farmstead trust. Income just sits in the bank waiting for some emergency. The trust is structured in such a way that I could choose to live in the house by paying the taxes, but I would then become responsible for all maintenance & upkeep out if pocket vs paying for it via the trust accounts. The goal of our trust was to keep the property intact and in the family: above comments re this being a not great idea as an investment, but if your goal is to keep an important or irreplaceable property in the family, this trust set up has worked well for us.
Feel free to memail me.
posted by anastasiav at 6:25 PM on February 24, 2012
You need an attorney who can set all this up as some kind of separate legal entity (ours is a family trust) that owns the property and maintains the financial side. In our case the price of keeping the property in the family is that I can't take any money out of the farmstead trust. Income just sits in the bank waiting for some emergency. The trust is structured in such a way that I could choose to live in the house by paying the taxes, but I would then become responsible for all maintenance & upkeep out if pocket vs paying for it via the trust accounts. The goal of our trust was to keep the property intact and in the family: above comments re this being a not great idea as an investment, but if your goal is to keep an important or irreplaceable property in the family, this trust set up has worked well for us.
Feel free to memail me.
posted by anastasiav at 6:25 PM on February 24, 2012
If you can't rent it out for an amount that at least covers the mortgage payments, then it sounds like a bad investment and one you should consider getting rid of. (After all, if the 'market price' to live in that house for a month is less than what the house costs for a month then that is not a good house.) Especially given the other complicating factors, and that the house will be a financial drain even if you rent it out, it sounds like the best thing to do might be to cut your losses. I'm sure its hard to think about getting rid of your family home during this time, but it might be the best thing.
posted by Kololo at 6:26 PM on February 24, 2012
posted by Kololo at 6:26 PM on February 24, 2012
This thread is closed to new comments.
You should hire a local property manager immediately. A local realtor whose business is at least 50% property managemnet. He can assess the property - determine its rent value and such.
I think it may be difficult for you and your sibling to keep and maintain this property. What do you do when you need to hire a plumber? Who lays out the money. If you both take income regularly from the property, then maintainence costs are going to be a pain.
If one sibling is nearby, that one will end up doing more leg work - being on site. Is there compensation for that?
Everything might be friendly now - but a joint venture managing and owning a piece of high end real estate can become a fight quick.
If I were you, I would sell it.
posted by Flood at 12:32 PM on February 24, 2012 [2 favorites]