lending money to DW's parents

[BoodaGazelle]

DW and I are co-owners (17%) with her parents' home, which they could not have bought without us. They are unable to keep it up, so we moved them to be nearer DW's sisters. To be able to sell the house, we had to do 12 years of maintenance and repairs, amounting to about $20,000. We did this with 100% documentation and transparency to all of the siblings. We also understand that 17% of what we paid was our share.



The house is still on the market, but we expect it to sell soon. We do not have any formal lending agreement or note with respect to the money we fronted them (i.e., their share of the $20K). We are now thinking we made a mistake by not getting some type of written agreement, just in case something happens to them, and even more importantly, so that the IRS could not look at that money as something they were trying to hide from their estate, were they forced to go on Medicaid in a nursing home.


Is this a "too bad, too late" thing, or could we still get a note drawn up for them to sign while they are still able to? If so, we would want (I think) for it to be collateralized by their share of the real estate equity, and payable to us on closing of the sale.


Am I on the right track? Or is this a "definitely get a lawyer" time?


Thanks,


Mitch

 

[street]

First I'm glad I didn't have this situation every come up in my life. I would just hope for the best and as long as it was transparent and all involved were aware of the deal I would trust all turns out well. I wouldn't go through all the legal stuff and just hope everyone keeps their promise.

 

[pb4uski]

Probably too late to get a lawyer. It sounds like you'll get reimbursed from the proceeds from the sale of the house soon so getting paid back is less of a concern. If they ever go into Medicaid LTC they might question why $20k of the proceeds went to you rather than to your DW's parents account but you can explain and show them the documentation and also show them documentation preceeding the repairs showing that the parents didn't have the money for the repairs. Probably the best that you can do at this point.

 

[BoodaGazelle]

I should add that the siblings are very grateful that we were financially able to front (not give) this money, to help their parents out. The main concern is that if, say, dye to a little bit of slowly approaching dementia, her father decided it that the full proceeds of their share of the house was theirs, and they refuse to repay us. I don't think this is likely, but we are trying to cover all of the contingencies.

 

[ivinsfan]

As a co-owner of the home keep all the documentation pertaining to the 20K you should be fine..now I'm saying this assuming that the co-ownership was written as part of the purchase of the house.

 

[pb4uski]

I think that the 17% is meant by the OP to mean that DW has 5 siblings, so 6 people will eventually share the estate.... so they"co-own" 17% of the house.

 

[BoodaGazelle]

Yes, everything was done by the book, except the loan for the renovations.

 

[ivinsfan]

I think that the 17% is meant by the OP to mean that DW has 5 siblings, so 6 people will eventually share the estate.... so they"co-own" 17% of the house.

No I took it mean they paid a flat amount toward ownership which came out to 17%....

 

[ivinsfan]

Yes, everything was done by the book, except the loan for the renovations.

You should be good with your receipts, can't offer any advise about the FIL balking about paying you back. Is you MIL competent to understand the numbers?

 

[BoodaGazelle]

They are mostly okay... but we can start to see some deterioration, which is why we want to get this transaction (i.e., sale of house and our equity + repayment) done ASAP.

 

[pb4uski]

No I took it mean they paid a flat amount toward ownership which came out to 17%....

Dunno... you may be right.

 

[bingybear]

DW and I are co-owners (17%) with her parents' home, which they could not have bought without us. They are unable to keep it up, so we moved them to be nearer DW's sisters. To be able to sell the house, we had to do 12 years of maintenance and repairs, amounting to about $20,000. We did this with 100% documentation and transparency to all of the siblings. We also understand that 17% of what we paid was our share.



The house is still on the market, but we expect it to sell soon. We do not have any formal lending agreement or note with respect to the money we fronted them (i.e., their share of the $20K). We are now thinking we made a mistake by not getting some type of written agreement, just in case something happens to them, and even more importantly, so that the IRS could not look at that money as something they were trying to hide from their estate, were they forced to go on Medicaid in a nursing home.


Is this a "too bad, too late" thing, or could we still get a note drawn up for them to sign while they are still able to? If so, we would want (I think) for it to be collateralized by their share of the real estate equity, and payable to us on closing of the sale.


Am I on the right track? Or is this a "definitely get a lawyer" time?

So you are talking about making it a mortgage? Or are you going to be a co-owner? Where will you be in the pecking order if things go bad? If you become a co-owner, what liabilities are you taking on.
Often the best intentions work out just fine. Sometimes not.

You do know if you are loaning money, you do have to charge interest (IRS rules).
What happens if the selling of the house costs a lot (repairs you did not see that have to be fixed before it sells. I've seen people needing 10 - 20k for repairs.

 

[BoodaGazelle]

We are already co-owners, at the 17%. We have already fronted the $20K for the repairs and renovations, and the house is on the market. IL's have already moved. When the house sells, we expect to get our 17% of the equity at the closing (we are on the deed), but we will be relying on ILs to simply give us their share of the costs which we fronted out of their proceeds.

 

[HarveyS]

Hello Mitch -
I think I understand the position you find yourself in. You try to help, with the best intentions. All siblings and parents are on-board. But time passes and people change (be it thru dementia or other).

I don't see a problem with drawing up a memo of understanding, dated today, that lays out in some detail what happened in the past and the current understanding of what the terms of the deal were. Bigger question is, did you have an understanding with the IL's before doing the renovations?

For example,

Between 5/1/2018 and 2/1/2019, Party A undertook a variety of repairs to the home to prepare it for sale. These are detailed in the attached itemized list. The total cost of the repairs was $20,102.53 and are to be shared per ownership in the House (17% Party A, 83% Party B).

Are you listed on the deed at 17%? I'm not familiar with how deeds are written.

Did you also share in the property tax, insurance, maintenance, etc. during the time the IL's lived in the house? Were you a full 17% owner or more like a lender of 17% to buy the house? This could affect how the IL's view the situation.

 

[BoodaGazelle]

We are co-owners, and on the deed. The only issue is making sure we get repaid the amount of money that was ILs share of the repairs and renovations, but which we fronted for them, with the explicit understanding (verbally) that we would get paid back from their share of the equity after the house sale closes.

 

[Aerides]

It sounds like your only risk is if death or dementia occur before this is all wrapped up?

If your IL's were otherwise healthy, and there was an alert convo "hey sure we'll spot you $20k to get the house ready to sell, and we'll add that on to our 17% of the proceeds, right?" - BEFORE all this took place, then it would be ndb.

But your comments here make it seem like you anticipate memory issues, so yeah it might have been better to get something written before hand.

I mean, my parents are selling & moving, but perfectly healthy. If they needed a quick loan (they aren't cash heavy), I would do it without question, and have no doubts of repayment. But your comments here make it seem like you anticipate memory issues, so yeah it might have been better to get something written before hand.

Might not be a bad idea to have a visit and make sure they remember, now, vs. later. Then maybe follow that up with an email or something "just in case the siblings forget".

 

[pb4uski]

.... I don't see a problem with drawing up a memo of understanding, dated today, that lays out in some detail what happened in the past and the current understanding of what the terms of the deal were. Bigger question is, did you have an understanding with the IL's before doing the renovations?

For example,

Between 5/1/2018 and 2/1/2019, Party A undertook a variety of repairs to the home to prepare it for sale. These are detailed in the attached itemized list. The total cost of the repairs was $20,102.53 and are to be shared per ownership in the House (17% Party A, 83% Party B). ...

Good idea... though I think I would frame the memo of understanding a Party A loaned $20k for pre-selling expenses with the understanding that the first $20k of proceeds would be used to reimburse them and that the remaining proceeds would be split in relation to ownership percentages.

 

[street]

One thing when we loan money to friends and relatives we must always keep in mind we may never see that money again. We hope too but that is a risk when we make a loan or pay back deal. I'm sure all will go fine in your case but you never know.

 

[Crewer]

Another topic - sort of. Do your in-laws have POAs, etc. signed already? If not better get it done ASAP if FIL is showing signs of dementia.

 

[38Chevy454]

Between 5/1/2018 and 2/1/2019, Party A undertook a variety of repairs to the home to prepare it for sale. These are detailed in the attached itemized list. The total cost of the repairs was $20,102.53 and are to be shared per ownership in the House (17% Party A, 83% Party B).

Are you listed on the deed at 17%? I'm not familiar with how deeds are written.

Did you also share in the property tax, insurance, maintenance, etc. during the time the IL's lived in the house? Were you a full 17% owner or more like a lender of 17% to buy the house? This could affect how the IL's view the situation.

Good idea... though I think I would frame the memo of understanding a Party A loaned $20k for pre-selling expenses with the understanding that the first $20k of proceeds would be used to reimburse them and that the remaining proceeds would be split in relation to ownership percentages.

I think Harvey's idea, with the clarification by pb4uski, is a good idea. It gives something in writing now, when the parents are in good mental health. It also ensures that any other siblings of OP do not all of a sudden get selective memory if things turn in bad direction on parent's health.

 

[BoodaGazelle]

Many thanks to all for suggestions. We do have POAs in place for both medical and financial.... This may all be a tempest in a teapot, as we expect the house to sell quickly, and to get repaid. But we are trying to be careful as well.



I always tell my wife how much I appreciate our fellow ER's... I tell her: these people are all pretty similar to us in many aspects of our lives!

 

[ivinsfan]

Good idea... though I think I would frame the memo of understanding a Party A loaned $20k for pre-selling expenses with the understanding that the first $20k of proceeds would be used to reimburse them and that the remaining proceeds would be split in relation to ownership percentages.

How would this work, does the bank involved with the buyers cut checks for the % of ownership plus the reno costs? This would definitely be the cleanest way to do, but doesn't solve the issue of the FIL thinking he got ripped off and wanting the 20K, what if the FIL won't sign off at the closing? It doesn't seem like a dispute either the bank or the relator would want to hassle with.

 

[pb4uski]

If FIL will sign off on the memo, then I think he'll have little choice... is it just you 17% and FIL 83%? If other siblings or people that he trusts are involved, financially or just have knowledge of the arrangement, perhaps they can remind FIL of the agreement that you would front up the money and get paid back from the sale proceeds.

Will FIL be signing the closing papers or will your DW be signing for him as POA? If the latter, then I think you should be all set.

Alternatively, if you have financial control over FIL's account, if the proceeds are split 17%/83% at closing, after closing you can deposit his 83% then reimburse yourself for $16.6k with the memo as documentation in case the $16.6k transfer is ever challenged.

 

[bingybear]

We are already co-owners, at the 17%. We have already fronted the $20K for the repairs and renovations, and the house is on the market. IL's have already moved. When the house sells, we expect to get our 17% of the equity at the closing (we are on the deed), but we will be relying on ILs to simply give us their share of the costs which we fronted out of their proceeds.

Does this mean if something happens at the house (someone trips and falls) that you can be sued? Are you covered for events that happen at this home too?

 

[gwraigty]

Does this mean if something happens at the house (someone trips and falls) that you can be sued? Are you covered for events that happen at this home too?

I'd guess that everyone on the deed could be sued. I wouldn't want to co-own a house with someone if I didn't live there. No control over potential hazards, especially when the people living there aren't keeping up with repairs and maintenance.