Dear Quentin,
My in-laws helped my wife and me purchase a home that we all live in, including my teenager. They provided $ 300,000, and we bought the home for just over $ 500,000. All four of us — my wife and I and my in-laws — are on the deed and the loan. I am currently paying the mortgage. We live in an equitable-distribution state.
My in-laws now want me and my wife to sign a document stating that, should we sell the house at any time, now or in the future, whether they are alive or dead, we will give a fixed amount of $ 125,000 of the initial proceeds to their adult granddaughter — our niece — who lives in another state. This will reduce their investment in the home to $ 175,000.
I said we could not sign this because it effectively constitutes a legal claim, a lien on the property, similar to that of a lender. Such a claim can be filed with the county and can harm attempts at refinancing or obtaining a home-equity line of credit that might be needed for improvements and repairs. I said we could maybe work out a percentage, after costs, etc., to disburse if we sell, but no fixed lien.
They got angry and they’re threatening to go to a lawyer. This is causing problems at home. This agreement would also take a lot of equity away from me and my wife. The in-laws think this is a fair way for them to get their initial investment back and to do what they want with it. Our home is now worth $ 720,000. What should we do?
Husband and Son-in-Law
Related: ‘I shouldn’t be punished’: My sister can’t afford to buy me out of our mother’s $ 450,000 house. She has no home. What should I do?
“Generally, unless the deed says otherwise, tenants in common have an equal interest in the property, so it sounds as if each of the four parties on the deed owns 25% of the house.”
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Dear Husband,
Don’t sign anything.
Types of ownership vary by state, but you either have joint tenancy with the right of survivorship or you are tenants in common. Joint tenancy with the right of survivorship gives all owners an equal share of the property and does not allow one owner to add another person to the deed — and, importantly, if one owner dies, their share of the property goes to the other owners. If you are tenants in common, however, you would not have the right of survivorship in the event that your in-laws predecease you.
Generally, unless the deed says otherwise, tenants in common have an equal interest in the property, so it sounds as if each of the four parties on the deed owns 25% of the house, says Brian P. Corrigan, a partner at Farrell Fritz. “Co-tenants have the right to live in the premises without paying rent to the other co-tenants,” he says. “The co-tenants also generally have an equal obligation to pay the expenses — taxes, maintenance and repairs. Thus, if there is a later sale, a co-tenant who paid these carrying charges may be entitled to a credit.”
“A tenant in common may not sell the entire property without the agreement of the other tenant(s)-in-common,” he adds. “Thus, the in-laws’ concern about a sale now or in the future may not be reason for concern. If they die, they can give their interest in the property to the granddaughter/niece. If the in-laws are alive when husband and wife want to sell the entire property — not just husband and wife’s interest — that can only happen with their agreement. The solution proposed by the in-laws appears to be one in search of a problem.”
Partition action
So where does that leave you? If they are threatening to contact a lawyer, it could be that they’re looking into a partition action — that is, forcing a sale of the property, regardless of what kind of ownership you share. “Tenants with right of survivorship are not obligated to continue a concurrent ownership and are not required to sell only their interests to sell themselves from the co-tenancy,” according to Cornell Law School. “Rather, the tenant has an absolute right to petition a court to partition the property if both tenants have concurrent possessory rights.”
You have a couple of immediate options: Selling the property and buying another home would seem to be the path of least resistance, especially as 1) there are four people on the deed and only two people paying the mortgage and 2) your in-laws seem to be capricious — they have surprised you with this demand and are threatening you with legal action if you don’t acquiesce. Alternatively, they could deduct $ 175,000 from your wife’s inheritance. But that does not solve the immediate problem — your legal ties to your in-laws.
The fairest way to sell the house would be to return their $ 300,000 investment and split the remaining equity 50/50. It’s a messy situation that raises other questions: Did your in-laws give you the $ 300,000 as a gift? Did they loan you the money with the expectation that you would repay it? Or do they intend to deduct that money from your wife’s inheritance, assuming you have rights of survivorship? Will the monthly mortgage payments you have made be taken into account when you are dividing the spoils? Any step you take should be undertaken with the help of a real-estate attorney.
Remember that the longer you procrastinate, the more your house will appreciate, and the more equity you will have to give away.
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Previous columns by Quentin Fottrell:
‘I grew up pretty poor’: I got an annual bonus. After I pay off my credit cards, I’ll have $ 10,000. What should I do with it?
‘I received an insurance-claim check for $ 22,000’: Why on earth does it take five days for my check to clear?
‘I want to protect my family’: My wealthy father, 49, is marrying his third wife. How do I broach the subject of my inheritance?