HawthorneVillager.com

Hoping any Mortgage, legal or Real Estate tax knowledgable people can help me with 3 questions I have...

Parents are retired and have 3 adult children. Each of the adult children already have their own home/primary residence.

Parents look to buy new home in Milton, put 39% down. The remaining 61% would be paid (by a mortgage) by each of the adult children. So about 20.33% of the house each per person.

(1) How would the mortgage be arranged? Who would sign it? Could the money to pay the mortgage automatically be taken from 3 seperate accounts? Or would 1 large joint account need to be made for purpose of paying the mortgage and then have the 3 siblings each have their name on it?

(2) For legal/deed-ownership of the house. How would that be arranged? One Simple way is just to have all 5 names on the ownership but then that would like like 20% each, which it actually isn't. Is it possible to show percentages of ownership? Or some legal agreeement between the siblings showing that? Don't want to make this too complicated or expensive with too many legal fees if possible.

(3) The home would be the primary residence of the parents. If the house got sold in the future, how would any capital gains be handled? Worried about it, because each sibling already has a primary residence that they're living in. But for the parents who will put most of the money in, and will be living in the house, it will be their ownly home and primary residence. If the house got sold 10 years from now, would their be no taxes?

Wow, thats some really good questions Rick.

I can only tell you from my experience that with our previous house, we had 4 people on the deed of the house and the mortgage payments were taken out of one account. We gave a cheque to be deposited in the mortage account and that was that. I'm sure if there was not enough money in the account Sandra & I would be effected. We had a written aggreement on how much money went into the house and that money would be given back accordingly. Then the appreciation and princple would be split 50/50/50/50

All in all it wasn't that bad, I would recommend with that many people to get something written and ok'd by a lawyer.

Then make sure that everybody has the $$ in the account before the mortgage payment is due.

Good Luck & hope you get some more good answers.

Tim

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http://spaces.msn.com/greensburg101/ website update...Feb 13, 2009

Can't answer all your question but as far as I know if you have ownership in a house that is not your primary residense than there would be capital gains issues when the house sold. Specifically, you would be taxed on 50% of the amount you made when selling the house. i.e. After selling and dividing the money between the siblings, your realized a profit of $20,000. over what you initially put in upon purchase. You would have to claim a capital gain of $10,000. and be taxed on that amount.

Rick, some banks will not even touch a situation like that for financing.

We went through this with a cottage inheritance and we bought some relatives out. The money used to buy them out was going to be mortgaged onto the cottage that was paid off.

After lots of meetings, it was determined the best way to go was have everyone remortgage or pull the equicty out of their current residence and pay off the cottage completely.

Are your 3 siblings able to pull equity out of their current residences?
Example- if the house is 300K, your parents put down, $117,000, that leaves 183000 divided by 4 siblings at $45,750. depepnding on financial conditions, you can get a secured line of credit for the $45,750 or possible refinance your mortgage for the $45,750. This would possible avoid a situation of someone not being able to make a payment and sticking the others and can allow you to pay off your portion quicker than the rest if you want. say you get a bonus or tax return, you can throw that money on your new mortage or towards your line of credit sooner.

Anyways, that is how we dealt with it between us and 3 other aunts and uncles.

Not sure if you considered this option. If you need more clarification, you can PM me if you want.

regards,

Matt

There are additional difficulties that you should be aware of with multiple people on the deed. Unlike joint checking accounts, where you can require all signatures to withdraw money, that is not the case with a house. One person can turn around and sign a legally binding sale agreement without the knowledge of the other owners. I've seen a few people that trusted their family get screwed that way.

In one case, a mother who had the house as her retirement funds but put her son on the deed so he wouldn't have problems liquidating in the event that she passed away found out after the fact that he had a gambling problem and signed away the deed to the house and was paying rent to the new owner to keep it... until he gambled away the rent money and she got evicted.

In the other case, a mother left her house to her son and daughter to be split equally and they were both trustees but the day after she passed the daughter sold the house to her boyfriend for an absuredly low price. Bruce was told his only option was to go after her for what the house could have sold for, but she didn't have any assets at that point, so he would be out more in legal fees than he would gain.

That being the case, I would definately, as Matt suggested, have everyone arrange their own financing and provide it to your parents in exchange for a promissary note with a lien against the house. That way they do not need to be on the deed for the house but their investment is protected. It will add more to the costs, but it is the only way to protect your parents and each other short of starting a corporation, having it buy the house, and selling shares to the contributors. (Which, if you were going to charge your parents rent, would give you tax advantages). It even binds the trustee to having to pay back the investments before doing anything else.

PS: IN regards to #3, since your parents are on the deed and it is their principal residence, there would be no capital gains when it sold, as you suspected.

too wierd...I just did a home like this, EXACT same situation, 3 brothers purchasing for their parents.

I can do it. Give me a call as well, and I will give you more information, it's REALLY hard to explain this in a post or a PM.

Jessica

905-330-0427

See a lawyer and an accountant then see a mortgage broker.
One major point I missed that we considered with the cottage is DIVORCE.

Technically if someone is on the deed and there is a Divorce, since your parents put in 39%, one of your siblings spouses could be entitled to 50% of the 15% they contributed to the house. In a hot market, that could mean 10,000's of dollars that Your parents or the rest of the siblings would have to come up with to pay them off.

The goal should be to protect your parents first!

Matt