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In 2012, my brother, my mom, my dad, and I bought $349,000 property with 10% down to it. I paid the most towards the down payment, $10,000.

Our mortgage is around $1,600/month and property tax of $2,500 yearly. I moved out in 2015. So my brother and my parents continue to pay the mortgage but my name is still on that property.

Unfortunately, my dad passed away in 2018 and we decided to talk about our shares. As of now the value of that property is around $750,000 based on the recent property sold in that area. The remaining mortgage balance as of April 2018 was $337,000. My brother loaned $60,000 so it went up to $400,000 before my dad passed away. This year, 2020, the remaining mortgage balance is $370,000. So my question is, how much share should I get if we split the share in four?

Am I still entitled to have the same percentage as my brother since I haven't lived there since 2015? Do you calculate the same percentage as the others since in the beginning I have highest amount of down payment?

JTP - Apologise to Monica
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Vhozip
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    There are a number of similar questions such as: Selling property inheritance share to sibling, 25 years later: original value? current value? something else?. You likely legally own 1/4 or 1/3 of the property regardless of who paid what when, but coming to an arrangement that everyone feels is fair can be tricky. – Hart CO Dec 09 '20 at 04:42
  • Thanks for the response. Well my brother wants to buy me out and replace my name with her wife to that property. I was only asking for 20% from the total capital gain instead of 25%. I leave the 5% for the 5 years I didn't pay the mortgage.But my brother just want to give his own number which is only $70000. Do you think that is fair enough? The house gained $400,000 – Vhozip Dec 09 '20 at 13:55
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    The property share should be based solely on how the property was initially divided, adjusted by how your father's share was distributed to his heirs. Your share of the $379,000 left after paying off the mortgage should be based on your ownership share, minus whatever you pay to the other owners for "covering" your share of the mortgage. Likewise, your brother's share should probably be decreased to the extent that others may have helped cover the additional $60,000 he borrowed. – chepner Dec 09 '20 at 16:35
  • I agree to the point that the share should be divide based on how the property was initially divided and just minus the years that I wasn't giving any payment for the last 5 years. The other problem is that my brother buying me out and took over the property but he doesn't want to sell the house. His willing to pay me $70K by loaning again in the bank and the remaining goes to his renovation. My point is his not going to pay the remaining share that I'm supposed to have. He keeps saying his not getting any amount from the property which of course his not until he sell the house. – Vhozip Dec 09 '20 at 17:41
  • I'm sorry for your family loss. Your share is equal to how much principal you helped to pay off before you stopped living there; so $10,000 plus whatever monthly mortgage principal you did pay. Your dad's share will be divided up per the will. Odds are that your mom will get his share but will not want to pay 2/3 of the mortgage on her own so she would work something out with your brother. In essence your share is worth how much you paid of the original principal assuming that you did not benefit from the $60k loan. – MonkeyZeus Dec 09 '20 at 17:55
  • It will get messy because if your mom and brother performed renovations which you did not help pay for then you are not entitled to the increase in value associated with that renovation. Get a lawyer. Since you do not live there it may be favorable to buy out your share. – MonkeyZeus Dec 09 '20 at 18:00
  • I submitted an edit to clean up some of your language and add some paragraph breaks. Most crucially, I assumed when you moved out you meant you started paying your "own rent" to someone else. If that wasn't true, go ahead and edit. You could probably even remove most of the figures because the answer is "get an attorney," but I didn't want to do that for you. – Azor Ahai -him- Dec 09 '20 at 19:21
  • @MonkeyZeus As a subtle point, I don't think the OP can be excluded from the increase in value for renovations they didn't explicitly agree to or contribute to, but the other owners can likely claim reimbursement for those costs from the proceeds before the remaining portion is split among all the owners. – chepner Dec 10 '20 at 01:48
  • @MonkeyZeus they did renovations last year but my mom pay for that. I guess she spend $1800. So the $60k has nothing to do with me and the property. I assumed that my brother used it for his own personal needs. When I moved out my brother brought his wife, mother in law and 1 renter(paying $400) but my parents still paying the same amount as my brother. Which I supposedly expect that they should pay less. Am I still entitle to have one fourth of that property since my brother brought his wife, mother in-law and a renter? – Vhozip Dec 10 '20 at 03:10
  • @Azor I moved out because I am renting with my girlfriend for 2 years then she bought her property after our marriage back in 2017. Right now I'm paying with her. But regardless of what happened, im still entitled to have my share in that property and I don't know how much percentage should I have? – Vhozip Dec 10 '20 at 03:19
  • @Vhozip It only would have mattered if you meant you had been paying rent to your family for some reason instead of paying the mortgage – Azor Ahai -him- Dec 10 '20 at 04:02
  • @Vhozip I see, this definitely requires a good lawyer and a good accountant. You guys need to bring record of every transaction associated with the house and who paid for it. You never mentioned whether you're selling the house or are trying to buy out someone's share or anything like that. So may I ask, why are you trying to figure out these numbers right now? If you were all 25% owners on paper then that remains true but it sounds like someone will get less money if the house is being sold to account for not paying their share of the mortgage. – MonkeyZeus Dec 10 '20 at 13:19
  • @MonkeyZeus yeah I have mentioned that in the beginning that my brother wants to buy me out and replace my name with his wife. So he wants to take over the property and offered me $70K just to removed my name. He loaned $60k and used it for his personal needs and my parents paid for what he have done. I don't expect to have 25% but 17% of that property! wasn't enough to conclude that for 5 years I wasn't paying for that property. He doesn't even include my share from my dad's share. So I insisted that this wasn't fair at all. – Vhozip Dec 10 '20 at 16:22
  • Do not accept any offer from him at this time. He is showing his greedy side. You absolutely must get an impartial 3rd party to mediate this or else you will lose a lot of equity. – MonkeyZeus Dec 10 '20 at 18:16
  • I guesstimate just under 20%. That's based on paying $10k of a $35k deposit, which gives you a claim to ~28.5% of the initial value (~$100k). I assume that when everyone lived in the house everyone paid equal mortgage amounts, with you paying 2012-2015. That gives you 4/9's of one share of the capital gains, where one share is the total capital gains ($400k) divided by 4. Or in other words, an additional ~$45k. Of the $750k value, $145k is (notionally) yours. But the bank is still owed, so it's best expressed as a percentage. You get 145 / 750 ~= 20% of whatever the bank doesn't take. – aroth Dec 11 '20 at 02:43
  • @aroth- I have the same calculation as yours. I'm only asking my brother for 20% of the total capital gained plus partial share from my dad's share. Which I think this might be enough for the fairness of everyone's share. I also proposed to deduct from my share all the payments in 5 years that I'm supposed to pay (e.i, monthly mortgage and the yearly property tax) then divide it by 4.This way he won't bother me asking those years that im not paying the mortgage.However, my brother wont accept my 20% proposal instead he only wants to give me 15% of the total capital gained. Does it fair to you? – Vhozip Dec 12 '20 at 18:32

3 Answers3

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You need a neutral outside expert who will look at all the numbers, and then render a decision with all the numbers explained. The three current owners will have to agree that the split the expert calculates will be accepted by all three parties.

They will have to start with any written documents that would have detailed the arrangement. The three parties have to provide an accounting of not only the down payment and the monthly payments, but any additional loans that were obtained and what the money was use for. For example that $60,000 loan if used to replace the roof could be viewed as a shared responsibility, but if it was used to buy a car or to pay for college it isn't a shared responsibility. They will also have to value the implied rent if anybody was living in the house for a particular month.

The additional twist is that when your father died, depending on the local inheritance laws and his Will it is possible that your mother inherited your fathers share, or it was split some other way. The executor of the will should have made that determination.

Sometimes this question is asked when somebody wants to sell their share to the others. In that case how much one is willing to settle for is the most important part of the answer. Sometimes this is asked after the home is sold.

You are asking while the three owners are still invested and will continue to be invested. That means the expert will also have to provide a method of recalculating the split going forward.

Besides determining the split for each person, this could be important when figuring if there is any tax issues when either a person sells their share to the others or if the house is finally sold.

Just a note: Even if everybody agrees to arbitration there is no guarantee that they will be happy with the answer. Families have disagreed over much smaller amounts.

mhoran_psprep
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  • Thanks for your response. As far as I know the $60K loaned by my brother wasn't used for renovation or nothing done with the property. I'm not sure where he used it for. Then I remember when my dad still alive he was frustrated because of that loan that they have to pay whatever increase amount of their monthly mortgage. That's the time when the remaining mortgage went up to $400K. Just recently I was talking to my brother and I told him we just go under a lawyer but he insisted that I wasn't understand his situation. Because I know he couldn't afford to pay me off unless he sell the house. – Vhozip Dec 09 '20 at 14:16
  • @Vhozip Definitely get a lawyer as it sounds like your brother feels entitled to more than his fair share already. – MonkeyZeus Dec 09 '20 at 18:32
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First, congratulations on the nice capital gain. (From now on, every time someone asks on here "What to invest in?!" I will send them to this question!)

  • The three of you need to - literally today - hire an attorney. Choose one who focusses on property

  • It will only cost maybe one or two hundred bucks per person

  • The attorney will do everything, including hiring an accountant to sort it out if necessary

There is simply literally no other process here, that is what you have to do. (Indeed, "today").

Footnote: in fact, realistically each person would need their own attorney. Unless you are all unbelievably happy, trusting, and don't care about money :O

Fattie
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    Thanks for your response and questions. Well right now I decided to hire a lawyer just to make sure I have the right share and share from my dad's share. – Vhozip Dec 09 '20 at 14:19
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    You have made the wise and only choice, there's a LOT of money at stake. An important point is, if "a lawyer decides things" then in the long term, there is LESS chance of bad feelings among the group involved. Cheers – Fattie Dec 09 '20 at 14:52
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    Suggested modification for this answer - it would be wise for each person to hire their own attorney; the OP will want one who represents his/her interests, rather than one which feels obligated to represent everyone's interests. – Grade 'Eh' Bacon Dec 09 '20 at 15:58
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    "(From now on, every time someone asks on here "What to invest in?!" I will send them to this question!)" - but next time, the winning market might not be property! After that happens, whenever someone asks "is there a guaranteed way to make money?" I will send them to your answer and a recent news article! – user253751 Dec 09 '20 at 16:18
  • @Grade'Eh'Bacon - Grade - you know I actually don't know what is best on that front. I was gonna suggest, as per Audrey Hepburn at the end of Roman Holiday, "to each their own", but, I thought maybe it might be less aggressive / possible to have a kind of group one. You're probably right. – Fattie Dec 09 '20 at 17:03
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    Is an attorney really necessary here? This actually seems like a pretty straightforward question that a CPA or someone with sufficient finance background should be able to calculate. The lawyer is just going to collect a payment for not-very-much-work. – Z4-tier Dec 10 '20 at 02:39
  • (From now on, every time someone asks on here "What to invest in?!" I will send them to this question!) Please don't! It's anecdotal. One person might have been lucky that the real estate market in their particular area developed in that way in that particular decade. Someone else might not be so lucky. Please don't pretend that you know the future and/or that you understand every real estate market in the world. – Philipp Dec 10 '20 at 11:55
  • Or at least, balance it by also sending them a link to a question about one of the horror stories where real estate owners got in hot water during the subprime mortgage crisis of 2007. – Philipp Dec 10 '20 at 12:03
  • @Z4-tier - an attorney is 10000% essential here, it is the poster-child case for where you need lawyers. – Fattie Dec 10 '20 at 12:34
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There are many different cash flows involved here— both positive (ie. capital gains) and negative (ie. rent due from each person that lived in the house, and paid to all those with an ownership interest)— with different people having different proportional shares of each. There are multiple start dates on which those various cash flows became relevant to the issue at hand. The good news is that it sounds like you are pretty certain about those dates, and the actual dollar amounts are well established. That turns a lot of this into straightforward cash flow analysis that any CPA should be able to do in their sleep.

The part where it will probably get sticky is the fact that they (your family) were living in the house for part of that time and you lived elsewhere. In that situation, they would owe you rent paid at a fair market rate for that property and in the same proportion as your ownership stake in the property. This is because they received the benefit of your investment (the down payment), while you gave up the potential income you could have had by investing that money elsewhere. Calling it "rent" is troublesome and tends to provoke negative emotions, so you will make this conversation easier if you talk about it as if it was a cash loan.

Note that they do not get to use the capital gains you have made on the property to offset the amount they owe you. There are several ways to explain this:

  • First, and most directly: capital gains is not the same as investment income (ie.interest). The windfall from selling the house does not offset the opportunity cost of the lost investment income you could have made had you used that money for some other purpose.
  • They have also received capital gains on their own investments. They have no more right to devalue your gains for their own benefit than you do to simply take a portion of their gains just because you feel like it.
  • The fact that you lived elsewhere is irrelevant: they are not retroactively paying your rent. Rather, you paid your own rent out of pocket in addition to the opportunity cost borne by holding a non-liquid asset that pays no interest.
  • The time they spent living in the house was made possible by your investment, but they must mentally disconnect you from that money. It is no different than a bank loan.

You need to separate the $60,000 loan from your brother, versus the value of the house and the improvements your father made. The amount owed on the house is still $349,000, not $400,000. Even if your dad directly used that money to increase the value of the property to $750,000, your brother is not entitled to a greater portion of that gain because of the loan. What he is entitled to is the outstanding balance plus any interest owed, period. That is how loans work.

Further, your brother is now owed that money from your mom, as she most likely inherited your dads share of the property as well as the debt. How she pays it has no impact on the proportional ownership interest that each of you now has in the house. When she dies, and if a portion of the loan is still outstanding, your brother would be able to collect the remaining balance from the estate before you divide up the remaining assets, and in that case it would reduce the total value that you would stand to receive from your moms estate. In no case does it alter the proportional interest each of you has in the property, because. it. is. separate.

These situations are always difficult, and it's good to remember that you're dealing with family. Try to empathize, but also set the expectation that everyone must do the same. You all deserve to be treated fairly and you all deserve your fair share. If you truly believe that the others are not mature enough to approach this objectively, and if you are unsure about the financial math involved, you can hire a CPA. A good one will be able to give you an exact breakdown of the entire situation using well established methods and explain all the details in a way that should leave everyone with the sense that they were treated fairly (not necessarily happy). I'd skip the lawyer unless things get really contentious; you (or your accountant) will probably know if things have reached a point where lawyers are necessary.

Z4-tier
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