Moral dilemma. Family money.

[Tonik]

So my younger step brother has a moral dilemma, and since he comes to me for advice so do I.  I have until I see him at Xmas to decide how to play this, so we have lots of time to debate it. Long story.

 

He and his female cousin inherited about 40K each from their grandmother.  They decided to jointly buy a small apartment building in Chicago and become real estate tycoons. It was intended to be a long term investment. They did this at the peak of the market, right before the crash. So they very quickly lost money, on paper anyway. But no need to panic, they were not under water, the building was paying the mortgage and maintenance so all they had to do was ride it out. At one point they refinanced, but the loan uses the building as collateral but ONLY her name is on the loan. But he is still listed as a 50 percent owner. How she did that is currently unknown but that is how it sits.

 

She was just killed in a car accident, with no will. They did not have the business take out life insurance on each other...which is the way you should always do it. Yes, they messed up. Everyone knows that, but this is where it is at.

 

So, the loan is in her name. The estate will have to be reconciled and closed out. That means the loan will have to be paid off or tanked.

 

Option one:  Tank the loan. But with the building as collateral there will be a big fight by the mortgage company. They will want the whole building, he probably has a case that they can only have half of it. But they have more money, lawyers and time than he does. And while he fights it out the estate will be tied up causing grief and issues for her husband and children. And they may very well go after the rest of the estate for the other 100K.

 

Option two: Cooperate, to a point. The property was intended to be a long term investment. Sell it, but insist he gets his 40K initial investment back.  Loan is for 200K, it's worth about 235K. So after all the expenses and what not the estate would have to cough up about 15K I would guess.

 

Option three:  Sell it, pay off the loan and split what little is left after expenses. He would probably incur a 30k loss on his initial investment.

 

He is leaning towards option Two.  I am pretty steadfast on option three, it sucks to lose your money but you made your bed and the kids are family. The husband is freaking, and being somewhat of a dick about this.  But I get that, his world just blew up. I should add, my step brother is poor as dirt. Her estate is pretty substantial.

 

So, do I stay out of it...that is hard. He is asking me for opinions. I really think option two is a dick move and it really bothers me.

Edited December 12, 2013 by Tonik

[magley64]

if it were me, option 1...  owner 1 is not responsible for owner 2's debt, especially if she took the loan without his knowledge... Which could be argued.

 

I'd bet a decent lawyer would take this case on contingency..

Edited December 12, 2013 by magley64

[madcat6183]

F it, your option 1 is probably his only true option.  After reading my post, you pointed out some key issues.

 

The bank only cares about their $$, they don't care about the property, so they will put it on the auction block ASAP, then go after the rest of the estate for any remaining balance.

 

His best bet, stop paying anything and just save it all unless he is planning to have some of her estate once it is settled in that case, keep paying and hope the bank breaks even.

 

Also, there may be a clause that says he has X days to refinance to his name, if he can.  He may want to talk to them about that if he plans to keep it, right now isn't the best time for banks to hold large rental properties, even in NY, NJ, CA, etc.  So they may be willing to work with him. 

Edited December 12, 2013 by madcat6183

[Tonik]

F it, your option 1 is probably his only true option.  After reading my post, you pointed out some key issues.

 

The bank only cares about their $$, they don't care about the property, so they will put it on the auction block ASAP, then go after the rest of the estate for any remaining balance.

 

His best bet, stop paying anything and just save it all unless he is planning to have some of her estate once it is settled in that case, keep paying and hope the bank breaks even.

 

Also, there may be a clause that says he has X days to refinance to his name, if he can.  He may want to talk to them about that if he plans to keep it, right now isn't the best time for banks to hold large rental properties, even in NY, NJ, CA, etc.  So they may be willing to work with him. 

 

He tried to talk to the bank. They won't talk to him, only the executor of the estate. No way he will be able to refinance it just in his name. That certainly would be the best solution.

[Steve Butters]

Is the husband not willing to continue with the property? If the bills are paid, why wouldn't the husband just team up and continue running the building?

[Steve Butters]

They don't have to settle the loan... I've seen mortgages where the borrower died 10yrs ago and one of the family members moved in and started paying... The banks don't give a shit who owns it as long as the mortgage is paid

[mello dude]

LIke it or not, you need an attorney for your step brother with specialty in real estate.....

[ScubaCinci]

Option 4 - find another investor to pony up the $ to pay off the mortgage and partner in the "business"...at least keep the property until it's profitable to sell. Step brother would make payments to the partner rather than the bank to even the ownership.

[turnone]

If the lender files a claim against the estate, the loan will have to be paid in full for the estate to be closed.  The property transfers at time of death to the husband.  He and joint owner are the property holders now.  Husband could refi in his name and keep it going. 

 

If the husband isn't willing, then your step brother would have to fight for his share.  I would guess and attorney could get his money back from the cousins estate.