How to Buy Out a Sibling’s Share of Inherited Property

Buying out a sibling’s share of inherited property can be a complex process. The method of buying out will depend on a number of factors:

• Is the property still subject of a mortgage or reverse mortgage?
• Has the property been transferred to the siblings or is it still with the estate (administrator or executor)?
• Do you have the cash to buy the property or will you take out a loan?

Basic steps in buying out a sibling’s share of inherited property

When buying out a sibling’s share, here are the basic steps in the process that you must undertake:

1. Property value

You need to determine the market value of the property. In this way, you can make a proper offer to your siblings. The best way to get the market value of the property is by hiring an appraiser. Usually, when the decedent dies, the executor or administrator will have the property appraised for purposes of the inventory. If you agree with this valuation, you can use this appraisal. If not, you can have the property re-appraised. Whether or not your sibling will accept your appraised value is another concern.

2. Mortgage

The second step in buying out your sibling’s share is by determining whether the property is subject of a mortgage. This will determine the amount of equity your sibling is inheriting and will provide you with a guideline on how much to offer based on the market value and the mortgage balance.

3. Buyout terms

Once you know the amount of equity your sibling has over the property, you can negotiate the buyout terms. The buyout terms will depend on a lot of factors:

• Who has ownership over the property? Is it with the estate or already with your siblings?
• Do you have the cash to pay for the property, are you taking out a loan, or are you assuming the mortgage?

4. Secure financing

Depending on the situation, you could take out a home equity line of credit, traditional loan, probate loan, estate loan, trust loan, inheritance loan, money lender loan, or probate advance.

5. Transferring ownership

Once you have paid your sibling, you can transfer ownership by filing paperwork both with the courthouse and the county records, depending on the circumstances of your case.

Buying your sibling’s share can be an emotional process for both of you. It is important to handle the situation with care to ensure that your relationship comes first and foremost.

Buyout Terms

As previously mentioned, your buyout terms will depend on a number of factors.

1. Property is still subject of a mortgage

When property is still subject of a mortgage, federal law allows the heirs to assume the mortgage under the same terms and conditions of the deceased’s mortgage. The due on sale clause in a mortgage is not triggered if the successor in interest receives the property through will or intestacy. Assuming the mortgage allows you to take advantage of the decedent’s interest rate and terms, even if your credit profile is not as good as the decedent’s.

If the heirs do not want to assume the mortgage, the executor or administrator will sell the property, pay off the mortgage, and distribute the remaining proceeds to the heirs.

If you want to buy a property subject of a mortgage, you could:

• assume the mortgage and pay off your siblings’ equity with cash
  • For example, if the property is worth $100,000 with a $50,000 mortgage and there are 5 siblings (including you), you can assume the $50,000 mortgage, and pay off the other 4 siblings $10,000 each.

• assume the mortgage and get a home equity, refinance, or cash out refinance loan to pay off the other siblings
  • Here, you can assume the existing mortgage, and also get a second mortgage to be taken from the existing home equity in the property. In the example above, if there is an existing $50,000 mortgage and the lender can lend you a maximum of 80% of the value of the home, you can still get a second mortgage of $30,000 on the property to be borrowed against the equity in the home, totaling $80,000 in mortgage debt. The $30,000 on the home equity loan could be used to pay off the other siblings.

• obtain a mortgage to buy the house, which would pay off the existing mortgage with the remaining proceeds distributed to the siblings
  • You can also obtain a different mortgage to buy the house. Your lender, however, will review your income and credit score to determine your loan eligibility and the amount you can loan. Usually, you would need at least 20% equity because the lender will only loan you a maximum of 80% of the value of the house. In the example above, you would need $20,000 equity, while the lender will put up $80,000. This amount will be used to pay off the $50,000 mortgage, with the remaining balance distributed to the siblings. The property will now be subject to mortgage with the new lender with different terms and interest rate. You will need to pay closing costs and the appraisal, if the property hasn’t been recently appraised.

2. Property is not subject of a mortgage

When the property is not subject to mortgage, you only need to buy out the other siblings. How do you buy out your siblings? Through cash, promissory notes, or loan.

• buying out your co-heirs with cash
  • This is the simplest procedure if you have extra cash lying around. You simply divide the market value of the property among the number of heirs to get each person’s share. In the example above, if the property is $100,000 with 5 siblings, each sibling will get $20,000. You will need to put up $80,000 in cash to pay your other four siblings.

• executing a promissory note secured by mortgage with siblings
  • Another option is to execute a promissory note payable to your sibling for installment payments of his inheritance share, giving him the right to foreclose in case you default on the installment payments. This option would be more feasible if you are only two siblings. If you grant several siblings the right to foreclose, one sibling’s creditor right may be subordinated to the other, and your siblings will likely not agree to this proposal.

• obtaining a loan
  • Since there is no previous mortgage to pay off, getting a loan will be easier with a clean title. Your options include a traditional loan, probate loan, estate loan, trust loan, inheritance loan, money lender loan, credit union, and probate advance. If there is no hurry, a traditional home loan with a longer term and lower interest rate would be ideal.

Most inheritance, probate, estate, and trust loans are short-term loans designed to lend you money, payable within a year to two years, the time it is estimated for you to receive your inheritance. It also gives you the chance to secure the more traditional home loan.

For example. some people get an inheritance, probate or estate loan because of how quick you can get it. When the property is already deeded to them, they take out a traditional long-term 30-year mortgage on the property and use the proceeds of the loan to pay the inheritance loan.

Other factors to be considered

Other factors may also come to play when negotiating with your siblings and determining the buyout terms. For example:

• when the property is subject of a reverse mortgage

  • Here, the siblings cannot assume the reverse mortgage. The reverse mortgage must be paid immediately. If you plan to purchase this house, you can pay off the reverse mortgage in cash (if you have the money) or through a probate loan or advance. Once you have the property deeded to your name, you can pay off the probate loan by taking out a traditional long-term mortgage on the property.

• when the property is still with the estate

  • Only the executor or administrator can act on the property, i.e., take out loans on the property. You will need to coordinate with the executor or administrator and your siblings the legal and most efficient way that allows you to be able to purchase the property.

• when the property has already been deeded to the siblings,

  • The mortgage would have been paid already and there is no more lien on the property. Here, you will have more time to apply for a traditional mortgage to buy out your other siblings’ inheritance shares, and each sibling can deed out their interest to you after receiving payment.

Selling inherited property to a sibling is a practical option, especially when the property has sentimental value and you want to keep the property within the family. Once a sibling decides that he wants to purchase the interests of the other siblings, he should already research the many options available for a loan. An estates attorney can help you structure the most efficient way to sell the inherited property to the sibling, given the many factors involved: the existence of the mortgage or a reverse mortgage, the fact that the property is still with the estate, and the need to apply for a loan. Should you need assistance, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].