If you have inherited property with your siblings, knowing how to buy out a sibling on shared property is important if you want to keep the property while the other siblings want to sell it.
Inheriting shared property is a normal occurrence. Parents usually leave real estate to their children equally, especially when these parents die without a will. When this happens, the siblings are faced with a choice: what should you do with shared property?
Siblings’ options when they share a property
Communicating with your siblings on what to do with shared property is important so you can arrive at a consensus without resorting to litigation. Avoiding litigation will save the siblings in the long run because if lawyers are involved, legal fees will be taken from the proceeds of the sale of the shared property.
Generally, the siblings have two options regarding the property: keep or sell.
If the siblings decide to keep the property, an agreement has to be drawn up regarding the expenses and management of the property. Will it be used as a vacation house? How are the siblings going to share the expenses of the property? Will it be rented out with the profits divided among the siblings? Who will manage the property?
If the siblings decide to sell the property, the net proceeds can be divided among the siblings, depending on each siblingās share.
Problems arise when the siblings do not agree on what to do with the property. Maybe someone wants to live in the property while the other siblings want to sell it. Sometimes, one sibling wants to keep the property, while the others want to sell it.
When one sibling wants to keep the property, that sibling buys out the shares of the other siblings in the shared property.
How to buy out other siblingsā shares in real property
If you want to buy out other siblingsā shares in real property, here are four things you should be able to answer:
- When are you planning to close?
- What are you buying?
- How much are you paying?
- How are you paying for it?
When are you planning to close?
When do you buy out other siblingsā shares in real property? As soon as your siblings decide they want to sell the property, you must begin acting quickly if you want to buy out their shares. The good news is that selling the property requires unanimous approval of the siblings because a buyer will generally only buy real estate if all the co-owners (siblings) sign the deed. This gives you the power to delay the selling of the property until you are able to find financing to buy out your siblingsā shares.
You canāt delay it forever however. When the siblings feel that you are unreasonably delaying the sale, they can file an action for partition. When an action is filed, any legal expenses may be taken from the proceeds of the sale of the property, which would lower your share as well. For this reason, keeping communication lines with your siblings is always important to avoid unnecessary litigation.
What are you buying?
If you want to buy out your siblingsā share, know what you are buying. You may have equal shares with your siblings or it may be unequal. It all depends on the source document ā how the estate was divided amongst your siblings. If you inherited the property by will, the will will state how much each siblingās share will be. If it is inherited intestate, the administratorās deed will state how much each sibling owns of the property. If the deed is silent, the presumption is that the co-owners own it in equal shares.
Remember that if you want to buy out your siblingsā shares in the property, you donāt have to pay for your share anymore. For example, if you are five siblings who co-own the property, and the property was appraised at $100,000, you only have to put up $80,000 since the $20,000 is your share. From this amount, a lender may lend 70% of $80K, which is $56K, requiring you to put up 30%, which is $24K.
How much are you paying?
When you want to buy your siblingsā share, one of the very first questions your siblings will ask is how much. How much is your offer? To know how much to offer, the shared property has to be appraised. Appraising property costs a few hundred dollars, depending on the type of property and location. When you want to buy the property soon after your parentsā death, you can use the date-of-death appraised value taken when your parents died to know how much to offer your siblings for their share.
How are you paying for it?
The most important part to know in buying out your siblingsā share is how. How do you buy it out? Cash or loan? Unless you have loads of cash lying around, you usually need to get a mortgage to buy your siblingsā shares. However, conventional lenders will not lend money for this purchase. Your options are usually limited to probate loans or trust loans from hard money lenders who are familiar with your situation. These types of loans can be released quickly but are short-term and high-interest. Once you have the property consolidated solely in your name, you can refinance it with a conventional lender for a long-term loan with a lower interest rate.
When siblings do not agree on what to do with the property
When your siblings do not agree on what to do with the property, one will most likely file an action for partition. In New York, under the Uniform Partition of Heirs Property Act, heirs are required to negotiate in good faith to reach a mutually agreeable solution. The court can dismiss the action for partition if it is shown that one of the parties does not negotiate in good faith.
As a co-owner, you have a lot of leeway to buy out your siblingsā shares in the real property. Financing is the most important part, especially when all parties already agree on how much the property should be sold. Communicating with your siblings is important to avoid unnecessary litigation. Remember that litigation can needlessly lower everyoneās equity in the property since attorney fees may be taken from the net proceeds of the sale of the property.
Should you need assistance, we at the law offices of Albert Goodwin are here for you. We have offices in New York, NY, Brooklyn, NY and Queens, NY. You can call us at 718-509-9774 or send us an email at attorneyalbertgoodwin@gmail.com.
