Inheriting a house with siblings can be complicated because especially when you and your siblings have different ideas on how to deal with the property. A lot of factors also come into play when deciding what to do with a property, such as whether the property is still subject to a mortgage, whether a sibling wants to keep the property, or whether a sibling is living in the property for free. The unique circumstances of each case will dictate the legal remedies and strategies when inheriting a house with siblings.
Inheriting a house that is subject to a mortgage
When you and your siblings inherit a house that is subject to a mortgage, you can either: (1) assume the mortgage; (2) pool your funds to pay off the mortgage; (3) sell the property to pay off the mortgage and divide the remaining proceeds between the siblings; or (4) buy out your siblings’ shares. Any of these are feasible options depending on the circumstances of your case.
Assuming the mortgage
When you and your siblings inherit a house, the transfer of property from the deceased parent to you and your siblings does not trigger the due-on-sale clause. The due-on-sale clause requires the entire mortgage debt to be paid when there is a transfer. Fortunately, this contemplated transfer does not include transfers by descent or devise. For this reason, when you and your siblings inherit a house, you do not need to pay the entire mortgage debt. You may assume the deceased parent’s mortgage.
Inheriting a house also does not trigger the ability-to-repay rule. This rule requires banks to lend money only to those who have the ability to pay. Because inheriting property and mortgage debt is not conditioned on the heirs’ ability to pay, even heirs who have no ability to pay can assume the deceased parent’s mortgage.
Assuming a mortgage is a viable option for siblings who want to keep the property. Mortgage payments can be taken from rental income of the house. If you and your siblings decide to keep the property, it is important to have a co-ownership agreement amongst yourselves, which would include details on the management of the property, use of the property, and payment of maintenance expenses, annual taxes, and the mortgage debt.
Even if the due on sale clause is not triggered in inheritances, you and your siblings can decide to pool your funds and pay off the mortgage debt. Several considerations, however, will come into play when you and your siblings have different contributions in the mortgage payment. Other issues mentioned above, such as payment of maintenance costs and annual taxes, can be discussed in a co-ownership agreement. This agreement, signed by all the siblings, will govern the relationship of the siblings with respect to co-owning the property (i.e., contribution of expenses, distribution of net income, use of co-owners of the property, etc.). If you need an attorney for drafting a co-ownership agreement, you can call us at 718-509-9774 or send us an email at firstname.lastname@example.org.
Selling property to pay off mortgage
The usual option of siblings when they inherit property with a mortgage is to just sell the property, pay the mortgage debt and other expenses, and divide the remaining proceeds. It is the easiest way to deal with inherited real property.
Buying out your siblings’ shares
You can also buy out your siblings’ shares in the inherited house. Here, you not only have to pay off the mortgage, if there is any, but you also have to buy your siblings’ shares.
If you have a lot of cash in the bank, you can pay off the mortgage and your siblings in cash. If your cash is not enough, you can get a probate or trust loan, a short-term high-interest loan which allows you to purchase the property quickly. After consolidating the property in your name, you can have the property refinanced with a traditional lender for a long-term low-interest loan.
Sibling disagreements over what to do with inherited house
If you and your siblings cannot agree on how to divide inherited property, one of the siblings can file an action for partition. A partition lawsuit, if granted, will force the sale of the property and the division of the net proceeds among the siblings. The court usually grants an action for partition unless the property can be physically divided.
If the siblings cannot enter into a compromise agreement in a partition action, the partition lawsuit will continue, the property will be sold, and the net proceeds divided. An action for partition can decrease your equity in the property because attorney fees will be subtracted from the sales proceeds before distributing the net proceeds to the heirs. For this reason, a partition lawsuit should be exercised with caution and should be settled as soon as possible.
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 partition action if it is shown that one of the parties does not negotiate in good faith. A particular procedure needs to be observed in partition actions involving heirs.
Should you need assistance in any matter relating to an inherited house among siblings, 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 email@example.com.