06/15/10: Sibling Rivalry – No One Wins
By Benny L. Kass
Q: Mom died a year ago, leaving the family home to me and my brother. I live in the house and would like to stay there, but my brother – who lives in California – wants to sell it and take his half of the sales proceeds.
The house is free and clear of any mortgage, and I have been paying the real estate taxes and insurance since our mother died. However, I do not have enough income to refinance the house and buy him out.
While we generally are on good terms, my brother is now threatening to hire a lawyer to assist him. What can I do?
A: If it is any consolation, you are not alone with this problem. It unfortunately is a very common problem. And also unfortunately, there are very few solutions that will satisfy both brother and sister.
Your problem is similar to that facing married couples in the midst of a divorce. There, since the parties are already in court, most disputes will ultimately be resolved by the Judge. The Court cannot, however, resolve the insistence of lenders that they will not allow the party not keeping the house to be removed from their mortgage loan obligations.
Have you explained your financial situation to your brother? Does he really want to throw you out of the house or is it really only about money? Can you agree on the market value of the house? If not, then you should arrange for an independent appraiser to provide you with a valuation. Some people use what is known as the “three appraiser” method: each party pays for their own appraiser. If the difference between their two evaluations is less than 10 percent, we split the difference and that is the agreed upon market value. If, on the other hand, the appraisers are far apart, they together obtain a third appraiser whose decision will be final.
I reluctantly use this method as a last resort; it’s time consuming and expensive to have to pay for three parties to provide a number.
Once you have agreed on the market value of the house, I would deduct six percent – which is the cost you both would pay if you had to retain a real estate broker to sell the house. Then offer to buy your brother out for half of that amount. Your brother could balk at having to reimburse you for the real estate taxes and insurance payments you made, since you were not paying any rent for his ownership portion of the house.
How will you pay for it? Clearly, the best approach would be to find a mortgage lender who will be willing to make you a loan. Shop around. Keep in mind that you only need to borrow half of the value of the house. Let’s assume that you reach agreement that the house is worth $400,000. That means that you will owe your brother $200,000. Many lenders – even with your low income – may be willing to give you a mortgage because there will be plenty of equity should you go into default.
But please talk with an attorney before you commit yourself to any loan. There still are a lot of loan sharks out there who will try to take advantage of your situation.
If you cannot obtain a loan, see if your brother will allow you to sign a promissory note and a deed of trust. You will agree to pay him monthly for a period of time, say 5 or 7 years, at which time the entire mortgage balance will come due. This is known as a “balloon note”. Hopefully by that time, you will be able to obtain a new loan in your name; if not, then you may be forced to sell.
But your brother wants cash now. He (or his lawyer) will threaten you that if you do not list the property immediately for sale, he will file a lawsuit known as a “partition action”. This simply means that the court will be asked to sell the house – either at the courthouse or through a real estate agent – and the proceeds will be divided equally between the two of you.
Partition suits are an acceptable means of resolving property disputes. The courts throughout this county have consistently said “if two or more people cannot agree on the disposition of their commonly-held property, we will force the sale through a partition action”.
You will then need an attorney to assist you. Your lawyer will advise your brother’s attorney that litigation is time consuming, expensive and always uncertain. More importantly, the only ones who win when a partition suit is filed are the attorneys, and the speculator who ends up buying the house.
Here’s another suggestion which may be of interest to your brother. Can he qualify for a mortgage loan? If so, you can borrow – in my example – $200,000, and give all of those proceeds to him. Then you would agree to pay him rent for the half of the property that he owns.
Alternatively, you could agree to sell the property to him, and he will pay you half of the value. With that money, you could either stay on as a tenant or use the proceeds to either rent somewhere else or buy a small condominium or cooperative unit.
I have personally handled several partition suits between brother and sister. In the end, neither party was happy.