Dear Moneyist,
My husband has a very close relationship with his parents and they have been kind enough to help us over the years when financing our homes. They helped my husband purchase his first home in 1996, prior to our marriage. He made the down payment and all of the monthly payments while his mother signed on the loan with him.
In 2009, I purchased a home and my father-in-law signed on the loan so that I would qualify. We have always made the payments, property taxes and insurance. Now, many years later, his parents are in their golden years and I often wonder what will happen to our equity if something happens to them while they are still on the loans and deeds to these two homes.
My husband only has one brother and he is not financially stable and actually rents my husband’s first home. In 2009, we were financially stretched and managing two mortgages, a full-time job and two small children. It was very overwhelming, so my in-laws also offered to manage the first home for us.
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This took a significant amount of pressure off my shoulders, dealing with renters etc. The rent at that time should have been sufficient to cover the mortgage, HOA and taxes etc., but not necessarily repairs so they have likely had out of pocket expenses over the years.
I am not 100% certain that the rent being charged currently is market rate. They have rented the home to relatives, with the current renter being my husband’s brother and I have no idea if he makes the monthly payment, but when we were managing the property he often did not pay when he lived there.
My husband tells me not to worry and, if something happens to his parents, his brother will not try to claim rights to any of the equity. We are not in a position to refinance at this time due to credit issues that I am working to resolve, a result of losing my job during the recession.
What right does his brother have to our property if his parents remain on the deed and what would you suggest that we do to ensure that our equity is properly protected in the event that his parents were to pass on? It was always their intent to assist with the loan, but that the property belonged to us.
Daughter-in-law
Dear Daughter-in-law,
Are your husband’s parents on the deeds of these homes as well as the loan documents? If so, this is something that needs to be rectified.
Mixing family and finance rarely works. It’s time to take back ownership of your homes and unravel this complicated financial arrangement. Your in-laws should make a will and specify that their equity in both these homes will be passed on to you when they pass. Otherwise, your brother-in-law will receive a portion of their estate when they die, if they are also on the deeds. A quitclaim is the most common way to transfer a property between family members. From what you say, your brother-in-law has become accustomed to his current lifestyle, and he’s unlikely to suddenly learn financial independence when that time comes.
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Talk to a financial adviser and/or your bank about what it would take for you to be financially healthy enough to put your names on the loans and the deeds of these two homes. Your husband’s parents helped you, but such acts of kindness rarely come without a gift tax. In this case, they get to take care of their son and give him a place to live. It’s a selfless kind of gift tax, granted. And your in-laws sound like good people. But there was a payoff whether or not you knew it at the time. Your husband’s family probably has a history of helping Peter to pay Paul’s rent. I have an inbox full of letters about such arrangements to show they rarely end well.
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In the meantime, you need to formalize the agreement with your renter. In this case, your brother-in-law. It may make more sense for your in-laws to supplement his rent in another house where there are no family ties and find new tenants for this home in order to get the market rent. Already, this arrangement has put you at a financial disadvantage. The more rent you can make, the more likely you are to reach a point of financial equilibrium and take full ownership of both homes, as you originally intended. It may be more beneficial to hire an independent agent to manage the property.
Your goal should be 100% ownership of both your homes. It’s time to create a road map in order to make that happen.
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