I'd start from scratch by thinking about what is suitable in terms of living accommodation for you, your SO and your soon to be two children, given your income, and where you want to be. Only if that matches up with either your current condo or your parents' house do you then start thinking about keeping your current tangle of property interests. If it doesn't match up, move out of the condo into where you want to be and sell the condo.
Honestly, I think that if you have been unable to pay even 25% of the mortgage on your current home (I can't think of any other reason why you would pay back less than your fair share other than financial inability) then you are not in a position to be owning any property in what is presumably a HCOL area, let alone thinking about rentals.
Are you saying that your parents were near to defaulting on the mortgage on their own home at a time when you were underpaying on your 25% of your condo? Do you pay rent to them on the 75% they own? You appear to have been getting a massive subsidy from them for years when they have had financial issues of their own.
If you think that there are potential inheritance fights with your brothers down the line, I would suggest setting up an arrangement now which removes any sense that any one of you is getting a financial benefit in advance or will be wanting an unequal share when the time comes.
Thanks for the response. First, wanted to clarify that it's my in-laws in the last paragraph who took a mortgage out late and who have the financial issues; not my parents. We were just considering the option of taking over my in-laws' mortgage in the case that they retire or pass-on and we want to build equity that way (we really haven't built any equity at this point in time). But this would also mean the displacing of my in-laws if they are retired so in that situation we would need to figure out an option for their living situation (perhaps a senior community housing type of thing)
My parents are financially sound and FIREd now (although "retired early" was closer to age 60 but that's besides the point). My parents had enough assets (in the vacation home and their own funds) to basically pay for the condo my wife and I are currently residing in. Of course, that does come with the arrangement that we are receiving financial benefit through subsidization... as far as that being seen as unfair/unequal my parents do understand that and have reminded my brothers of how they have helped each of them financially, in attempts of nipping at the bud. I don't think that's quite enough though and would still probably want to pull out of this to prevent potential conflicts (especially with my sisters-in-law).
As far as being unable to pay the 25% back, we can at least now. It's just that my parents and I agreed on the amount we agreed that I'd pay arbitrarily (this was well before I was married) and never really revisited - it's just a very 'comfortable' amount to pay back but is not based on any sort of term (I think my parents' intention was to just help subsidize the cost so we would have a higher savings rate and eventually be able to buy into a bigger place, etc if we wanted). With the amount of money I've saved, it is certainly possible to pay off the remaining 25% if we so wish to. The question is if we want to go down that road, which it seems may be a bad idea regardless if it means conflict with my siblings.
The other option is to seek to buy out my parents, but we'd have to then come to some other arrangement on us putting out another large downpayment (to get 50%+ ownership) and then repay them the remainder on a set term. But that would only make sense for the long-term IMHO.
So the last option is for my parents just to fully reclaim the place so that we're 'renting' from them again but without any ties of ownership, and we consider looking for perhaps a single family home, etc and take a mortgage out on that ourselves. Yes, OC is a pretty HCOL area so if we wanted to stay here, we most likely wouldn't be able to stay in the city we're in now, Irvine. Since I telecommute, I have the flexibility to move anywhere, so we would really have to think of another city to move to (perhaps Lake Forest?) or even out of state, where it's a little more affordable once we do presumably take a mortgage out.