Author Topic: Need advice re: private mortgage lien  (Read 1051 times)

friedmmj

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Need advice re: private mortgage lien
« on: February 17, 2019, 04:04:59 PM »
My brother and I are trying to figure out how to divide a small inheritance which consists of a small row home (free and clear and market value < $50k) along with a sum of cash around $28k.  He is a financially irresponsible loser (no wife or kids at least) and is currently living in the home by himself.  I don't want to sell the house because he likely won't find anything as affordable as that (super LCOL area) and if he had the cash proceeds he would blow it inside of a year and have nowhere to live.

I came up with the idea to put the $28k cash into a reserve account which I will control and pay the property taxes ($1k/yr) and any major repairs like new roof or water heater.  I want to put the deed in his name only so I don't have liability but I also don't want him taking out any equity line or reverse mortgage and I also want to retain my ownership stake for when he dies or sells eventually. 

How easy is it for me to place a first mortgage private lien on the house representing my half of the estate?  I don't intend to collect payments or interest.  I just want to have that lien so he can't screw me and cash-out mortgage the place himself.   Do I need a lawyer for this or could I pull it off on my own with the county clerk?

shingy

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Re: Need advice re: private mortgage lien
« Reply #1 on: February 18, 2019, 07:34:15 AM »
I'm not a lawyer, but would think if both of your names are on the deed, that he'd need your signature on any paperwork to get a mortgage, HELOC, etc. So, I would think that would be sufficient to protect your interest in the property. And, as long as you're paying the property taxes and any HOA dues, you don't have to worry about other liens. The only exposure I could see is mechanic's liens if he hired someone to do work and then didn't pay them.

friedmmj

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Re: Need advice re: private mortgage lien
« Reply #2 on: February 18, 2019, 08:57:03 AM »
I'm not a lawyer, but would think if both of your names are on the deed, that he'd need your signature on any paperwork to get a mortgage, HELOC, etc. So, I would think that would be sufficient to protect your interest in the property. And, as long as you're paying the property taxes and any HOA dues, you don't have to worry about other liens. The only exposure I could see is mechanic's liens if he hired someone to do work and then didn't pay them.
I don't want my name on the deed though because I don't want any liability.  We don't intend to insure the property.  He has no assets and I have a net worth in excess of $1M.

sammybiker

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Re: Need advice re: private mortgage lien
« Reply #3 on: February 18, 2019, 10:34:57 AM »
@friedmmj Placing a first position lien is simple enough.  I'm not sure on tying it to your half of the estate though.

What I would do is call a couple local title companies and go over the situation with them.  I've done first position liens myself and it's quite painless with a good title company.

Jon Bon

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Re: Need advice re: private mortgage lien
« Reply #4 on: February 18, 2019, 04:41:09 PM »
I'm not a lawyer, but would think if both of your names are on the deed, that he'd need your signature on any paperwork to get a mortgage, HELOC, etc. So, I would think that would be sufficient to protect your interest in the property. And, as long as you're paying the property taxes and any HOA dues, you don't have to worry about other liens. The only exposure I could see is mechanic's liens if he hired someone to do work and then didn't pay them.
I don't want my name on the deed though because I don't want any liability.  We don't intend to insure the property.  He has no assets and I have a net worth in excess of $1M.

WUT?

shingy

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Re: Need advice re: private mortgage lien
« Reply #5 on: February 19, 2019, 07:44:16 AM »
I'm not a lawyer, but would think if both of your names are on the deed, that he'd need your signature on any paperwork to get a mortgage, HELOC, etc. So, I would think that would be sufficient to protect your interest in the property. And, as long as you're paying the property taxes and any HOA dues, you don't have to worry about other liens. The only exposure I could see is mechanic's liens if he hired someone to do work and then didn't pay them.
I don't want my name on the deed though because I don't want any liability.  We don't intend to insure the property.  He has no assets and I have a net worth in excess of $1M.
Ah, sorry, I missed that part of your post.

SwordGuy

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Re: Need advice re: private mortgage lien
« Reply #6 on: February 19, 2019, 01:33:38 PM »
No, No and NO!!!

This is a stupid idea.   

You are not responsible for the fact that your brother is irresponsible.   Your brother is at fault.  Your brother will remain irresponsible until he either dies or decides to change.  You cannot control that.  Only your brother can.

You should NEVER EVER enter into a business arrangement with a known irresponsible person and expect them to act responsibly IN ANY WAY, SHAPE OR FASHION.   That is, to put it simply, a truly stupid thing to do.

Why?

Because your brother is irresponsible. THAT'S WHY!

You want to save the investment value of the property for some point in time in the future?   That would mean that someone living there would have to act in a responsible manner about water leaks in the plumbing or roof or refrigerator.   But wait, what kind of person will be living there?  Your IRRESPONSIBLE brother!


A responsible person would notice the house needs painting to protect it from the weather.  They would set aside money to buy paint and either paint it themselves or hire someone to do it.   Will someone irresponsible do that?

How about something as simple as keeping the water running a bit when it gets really cold outside instead of having the pipes burst and doing lots of water damage? Or turning off the water service to the house before leaving for a 2 week vacation instead of coming home to a house with a basement full of water and ruined floors, ceilings, etc., when something breaks?

Expecting someone to be responsible for 30+ years when they've been irresponsible for that long already is a fool's game.

You have several possible choices:

1) Give him the house and be done with the problem.  Then if he screws things up you won't be dragged down by any irresponsible actions on his part.

2) Sell the house to someone else and be done with the problem.   The fact that your irresponsible brother would like lower rent is his problem caused by his choices.   There is no reason for you to pay the price for his choices, that should be him.

3) Sell the house to someone else who wants a tenant in the place already.   Of course, an irresponsible brother would make the deal unattractive to the very few people who would be potential buyers by messing up the place or otherwise appearing irresponsible.

4) Sell your half of the house to your brother.   A responsible brother would pay you what was agreed and keep the house maintained in case you had to foreclose on it.   Of course, an irresponsible brother might not pay, might not keep the house in good repair, and then treat you like dirt because they chose to blow their mortgage money on luxuries.  At that point, you either foreclose on a house that's in worse shape and evict a brother who now hates you and blames you for all his problems, or you revert to option #1 and give him the house (for which he won't be greatful, either).  And, of course, every time he writes you a mortgage check it will be to the greedy brother.

In my opinion, no option that ties you into his irresponsible financial choices should be considered.  That really leaves #1 or #2.

Maybe my expectations of how your brother might act is too harsh.   You'll have to decide. 

Best of luck.



K-ice

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Re: Need advice re: private mortgage lien
« Reply #7 on: February 19, 2019, 04:22:06 PM »
Sorry for your loss. I read parts of your other post and I wouldn't help out financially.

https://forum.mrmoneymustache.com/welcome-to-the-forum/question-for-you-real-estate-folks/


Have him get HIS OWN MORTGAGE for the share he will still owe you on the house.

You said less than $50K.  Get it appraised but lets assume 46K (Feel free to do a spread sheet with other numbers.) 
If you two can agree on a price, maybe you can avoid appraisal fees.

46K + 28K = 74K      divide by 2 so  $37K cash for you.


He gets the house, & doesn't need to move, but still owes you 9K.

If a bank will not loan him 9K on a house valued at 46K why would you even consider it? 

One problem may be that the amount is too small for a bank to consider as a mortgage. (maybe he could/should borrow a bit more to have an emergency fund) Maybe his credit could be so bad he can't get anything. DO NOT COSIGN. 

You can help him look for a good rate, decide on the term of the mortgage, decide if a mortgage HELOC blend is better for him etc.

There may still be some closing costs and estate taxes to pay so don't forget that or put it all on you (unless you are feeling generous). Also, closing an estate can take a while. Even easy ones can take a year from what I have seen. So tell him to be patient and the estate will probably need to pay insurance & taxes out of the cash until it settles.   

He has an opportunity to OWN a place to live for close to $10K, that sounds like a pretty good deal.

Help him with a budget.  Can he afford the tax, insurance, utilities & the small mortgage payment?
You can save your $37K as his rainy day fund if you are really generous but I wouldn't tell him about it.


Actual home ownership is maybe a chance for him to take responsibility and turn himself around financially.




SwordGuy

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Re: Need advice re: private mortgage lien
« Reply #8 on: February 19, 2019, 05:09:13 PM »
Sorry for your loss. I read parts of your other post and I wouldn't help out financially.

https://forum.mrmoneymustache.com/welcome-to-the-forum/question-for-you-real-estate-folks/


Have him get HIS OWN MORTGAGE for the share he will still owe you on the house.

You said less than $50K.  Get it appraised but lets assume 46K (Feel free to do a spread sheet with other numbers.) 
If you two can agree on a price, maybe you can avoid appraisal fees.

46K + 28K = 74K      divide by 2 so  $37K cash for you.


He gets the house, & doesn't need to move, but still owes you 9K.

If a bank will not loan him 9K on a house valued at 46K why would you even consider it? 

One problem may be that the amount is too small for a bank to consider as a mortgage. (maybe he could/should borrow a bit more to have an emergency fund) Maybe his credit could be so bad he can't get anything. DO NOT COSIGN. 

You can help him look for a good rate, decide on the term of the mortgage, decide if a mortgage HELOC blend is better for him etc.

There may still be some closing costs and estate taxes to pay so don't forget that or put it all on you (unless you are feeling generous). Also, closing an estate can take a while. Even easy ones can take a year from what I have seen. So tell him to be patient and the estate will probably need to pay insurance & taxes out of the cash until it settles.   

He has an opportunity to OWN a place to live for close to $10K, that sounds like a pretty good deal.

Help him with a budget.  Can he afford the tax, insurance, utilities & the small mortgage payment?
You can save your $37K as his rainy day fund if you are really generous but I wouldn't tell him about it.


Actual home ownership is maybe a chance for him to take responsibility and turn himself around financially.

Very good advice!

robartsd

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Re: Need advice re: private mortgage lien
« Reply #9 on: February 19, 2019, 05:27:11 PM »
I'd get the house appraised and take the cash with your brother owing you the difference. Then I'd probably forgive the debt as a gift and move on. Is the ~10k difference worth the hassle/emotional cost of being too closely tied to an irresponsible sibling's living situation?

theoverlook

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Re: Need advice re: private mortgage lien
« Reply #10 on: February 21, 2019, 07:35:57 AM »
I'd get the house appraised and take the cash with your brother owing you the difference. Then I'd probably forgive the debt as a gift and move on. Is the ~10k difference worth the hassle/emotional cost of being too closely tied to an irresponsible sibling's living situation?

This is good advice. I would just take the cash and gift the remainder of the equity in the house to your brother. I agree with getting an appraisal, too, and make sure your brother gets a copy. Otherwise he might spend the rest of his life thinking you got the better end of the deal and bringing it up at family gatherings. To me, $9k-$10k is not enough to get yourself into this situation of commingling assets or finances with a financially irresponsible person. You've got a significant net worth and don't need to optimize this relatively small inheritance.

BicycleB

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Re: Need advice re: private mortgage lien
« Reply #11 on: February 24, 2019, 06:56:38 PM »
I'd get the house appraised and take the cash with your brother owing you the difference. Then I'd probably forgive the debt as a gift and move on. Is the ~10k difference worth the hassle/emotional cost of being too closely tied to an irresponsible sibling's living situation?

This is good advice. I would just take the cash and gift the remainder of the equity in the house to your brother. I agree with getting an appraisal, too, and make sure your brother gets a copy. Otherwise he might spend the rest of his life thinking you got the better end of the deal and bringing it up at family gatherings. To me, $9k-$10k is not enough to get yourself into this situation of commingling assets or finances with a financially irresponsible person. You've got a significant net worth and don't need to optimize this relatively small inheritance.

All good advice. Good luck.

When the title is transferred, use $28 from the $28k account and bring him some beer for the housewarming party.  :)

Villanelle

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Re: Need advice re: private mortgage lien
« Reply #12 on: February 25, 2019, 02:22:34 PM »
I agree with the others that your plan is overly complicated with no real upsides for you.  Given the fairly insignificant difference in what he'd owe you if you just took all the cash and he took the house, I'd just sign over the house.  Take the cash.  If you can't walk away from that ~$9k and don't want to call if birthdays and Christmas for the next X years, then arrange a payment schedule with your brother, but know that you very likely may not get all, much, or even any of that money back.

But it's going to be a lot easier.  And frankly the lien and all that is going to cost money to set up, especially since it sounds like you aren't quite sure how to DIY.  (But I will tell you that I have a mortgage with my parents and we had a realtor we knew in passing help us set up the lien.  He charged very little.)  So really try to bring yourself to be okay just walking away from that difference, even knowing that he may never acknowledge or appreciate it.  In the end, you aren't doing it for him.  You are doing it for your own stress levels and to disentangle yourself from someone whose life is a mess. 

waltworks

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Re: Need advice re: private mortgage lien
« Reply #13 on: February 25, 2019, 03:45:19 PM »
+1, just take the cash and give him the house.

-W