Selling inherited property to a sibling is common when one sibling does not wish to keep the property while at least one other sibling does. In this case, one sibling buys out the inheritance of the other. The procedure of buying out the inheritance of another sibling depends on a lot of factors: whether the property is subject of a mortgage or a reverse mortgage, whether the estate still owns the property, or whether the property has already been deeded to siblings. In all cases, the property has to be appraised in order to determine its market value.
Selling inherited property to sibling when the 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. 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.
Assume the mortgage and pay off the other heirs with cash
If you would like to be the person to purchase the property, you can tell your siblings that you would like to assume the mortgage and pay off their respective shares in 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
You can assume the mortgage, and 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. You will need to pay closing costs and the appraisal, if the property hasn’t been recently appraised.
Selling inherited property to sibling when the property doesn’t have 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 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, however, if there are only two siblings since you would only need to buy out the other share and execute one promissory note with your sibling’s right to foreclose. 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 loan options include:
- Traditional loan
- Probate loans
- Estate loans
- Trust loans
- Inheritance loans
- Money lender loans
- Credit unions
- Probate advance
When obtaining a loan on to pay off your siblings, check the term of the loan and the interest rate, among others. 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.
A probate advance is a more viable option because no monthly interests need to be paid. The lending company will give you money on a discounted amount based on a sum of inheritance you expect to receive in the future. For example, if you plan to receive $100,000, the lending company will advance to you the amount of $90,000 right now. You then assign your right to receive the $100,000 inheritance to the lending company.
Some people get an inheritance, probate or estate loan, and 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
When the property is subject of a reverse mortgage,
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, NY, Brooklyn, NY and Queens, NY. You can call us at 718-509-9774 or send us an email at firstname.lastname@example.org.