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Sharing a home and a mortgage
Old 04-26-2008, 04:10 PM   #1
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Sharing a home and a mortgage

I am trustee for a dear friend’s estate and have a question for the forum.

Mary is in her early 80's and fortunately in very good health. She owns and shares a home with Joe, her S.O. They are not married, but have lived together for many years, and keep their finances separate with very good written records. They’ve taken title to the home as tenants in common 50/50 and will each leave their share of the home to their children from previous marriages.

Last night we were discussing their finances over cocktails. They are wondering how they will calculate their shares of the proceeds of the sale of their principal residence when the time comes. They both have accountants but we are all enjoying the challenge of working this out. We are ok till we get to the last part - then we’re stumped. :confused::confused:

I know there are some math wizards on this forum and we sure would appreciate any help. (The figures are hypothetical to make it easier to calculate.)

They have a 30 year fixed rate mortgage which was taken out 5 years ago. The balance is now $300,000 with a monthly payment of $1800 principal & interest only.

They share the property taxes, insurance and costs of running and maintaining the home 50/50.

Currently Joe owes $160,000 & Mary owes $140,000 & they have agreed that the share of the monthly mortgage payment each pays will reflect that difference.

Accordingly, Joe pays 160,000 divided by 300,000 multiplied by 1800 = $960 (ratio = .533)
Mary pays 140,000 divided by 300,000 multiplied by 1800 = $840 (ratio = .466)

Here is the complication and the question:

Joe has some extra cash and wants to pay off the entire $300,000 mortgage with his money and take a 10 year fixed rate equity loan for $100,000 on which he will make the payments. ( So, instead of owing $160,000, he will owe $100,000).

Meanwhile, Mary will continue paying on the $140,000 she owes, but instead of paying the mortgage holder, will pay Joe instead.

When the time comes to sell, how do they calculate the amounts each will receive from the sale proceeds? We’re guessing they’ll receive about $700,000 after all expenses of sale. (We have an interest amortization table - if that helps.) Thanks!!!
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Old 04-26-2008, 04:18 PM   #2
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I'm a partner in a business with a buy-sell agreement that specifies what my company stock is worth should I die during a fiscal year. The agreement also specifies the terms of payment to my heirs. It seems that Joe and Mary could (and maybe should) enter into such an agreement if such a thing is legal in their real estate deal. I would check with a lawyer to see what advice he/she has.
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Old 04-26-2008, 04:22 PM   #3
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They must live in California. Nowhere else on earth do things get this complicated. My suggestion is to simplify. If Joe pays off the place and pays Mary for her equity, he could give her the right to live in the home at a given monthly rent for however long she is able (plus property taxes). The home would then revert to his heirs. Mary could do the same.

Unfortunately, any share property would immediately trigger heir-wars with charges the other one was profiting from the death of someone that had left their property to them.

Mary and Joe could mutually leave their interest in the property to the other party at a specified price (2 or 3 appraisals?) and that would determine payment. The non-dying person would then have a choice of paying or moving.
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Old 04-26-2008, 04:47 PM   #4
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With the editorial aside that this seems overly complicated to me...

Assuming that Mary's payments are unchanged.
They/she is starting year 6 of a 30 year amortization schedule. Let say she dies in 10 years so we are 15 year into paying off the mortgage. Using the original mortgage schedule her balance if no refinancing was done would be 140K/300K times the remaining balance.

That is the amount her estate owes Joe. If Joe dies first it is also the amount Mary owes Joe's estate. Essentially her liability which is a 14/30 share of the mortgage is transfered from the bank to Joe.

My mom and her SO went through a similar issues. Although most of their agreement involved with how long the remaining partner got to stay in the place.
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Old 04-26-2008, 04:54 PM   #5
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Why on earth would 80 year olds have a mortgage??:confused:
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Old 04-26-2008, 05:18 PM   #6
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This part of your post just tickles me, for some reason--it sounds so sweet and yet so macabre, the cocktails and everyone enjoying the discussion:

Last night we were discussing their finances over cocktails. They are wondering how they will calculate their shares of the proceeds of the sale of their principal residence when the time comes. They both have accountants but we are all enjoying the challenge of working this out.
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Old 04-26-2008, 06:07 PM   #7
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Hey troops simmer down. You're right clifp - too much info. We're looking for a math formula - and I think we've found it.

In 5 years - Joe and Mary sell for $700K clear. By then, Joe owes $75K on the equity loan and Mary owes Joe $120K.

Divide $700K by 2 = $350K each.
Mary hands Joe $120K leaving her with $230K.
Joe has $350K plus $120K = $470K minus the $75K he owes, leaving him with $395K.

It adds up to $700K. Musta been the cocktails. Not too bad for 80 year old - eh?
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