Trying to save the family home

[Justin J]

Jurisdiction

Ohio

Ok, I have a question regarding an estate. I am the administrator of my brothers estate. He had no will, no anything. He only has one heir, an 18 year old son.

The son really wants to keep the family home. It is not in very good condition and needs alot of work. Thier is a mortgage of just under 70K left to pay. We are being forced to sell it because he cannot get a loan or anything. He is about to join the Navy and wants to have this house to come back to in 5 years.

I offered to buy the house for him and rent it out for the next 5 years and sell it back, but we have to buy it at appraised value of 121K. After i dump 40K more into it, it will never be worth it.

I have come upon the idea of just paying off the mortgage and then there is no lien on the house anymore. I would put a lien on the house that he has to pay back in 5-10 years.

Questions
Would he still be forced to sell the house to pay other debts?

Any other better options?

 

[Zigner]

Would he still be forced to sell the house to pay other debts?

No, you, as the executor, would need to do that.

Any other better options?

"Better" is entirely subjective and not something we can answer.

Perhaps you can pay off the other debts then loan him the money for the mortgage payments on a monthly basis?

Or, perhaps you can simply loan him all the money that he can start repaying when he returns?

 

[Zigner]

You may also wish to review the following page: What Happens to Your Mortgage When You Die?

Your nephew may be able to take over the loan without the need to qualify. Renting it out may be a little problematic, though.

 

[Justin J]

So if he just continued to pay the mortgage payments, how does the estate close.

What would happen to any other debt? Theres not much. An automobile loan for a car that schould cover the entire loan. and about $12k in credit card and misc debt.
But we also have a bout $10K in bank plus other assets that could be sold.

If we paid off the loan for the house, could we then use it as a rental until he is out of the navy?

 

[Zigner]

So if he just continued to pay the mortgage payments, how does the estate close.

What would happen to any other debt? Theres not much. An automobile loan for a car that schould cover the entire loan. and about $12k in credit card and misc debt.
But we also have a bout $10K in bank plus other assets that could be sold.

If we paid off the loan for the house, could we then use it as a rental until he is out of the navy?

If you pay off the house, and if the other debts of the estate are payed, then your nephew can do whatever he wants with the house.

If your nephew would like to take over the mortgage, that may be possible. The mortgage company won't be looking at his ability to repay the loan (per federal law), however, there may be restrictions on how the house is used. He should confer with a real-estate attorney about this.

 

[Tax Counsel]

I offered to buy the house for him and rent it out for the next 5 years and sell it back, but we have to buy it at appraised value of 121K. After i dump 40K more into it, it will never be worth it.

Then that tells me that he's not thinking with his head, but rather his heart. And that's a recipe for financial disaster. Moreover, he's just 18 and will change a lot in five years after a stint in the Navy. He may not want to move back there when that time rolls around. You need to focus on your duties as executor, and that means paying off the estate debts with the estate assets, distributing the assets, and be done with. If the home has to be sold to do it, then that's the path you take. And frankly, that's probably the better result for him even if he doesn't realize it. Being a landlord can be real pain in the ass, and if the property is not in good shape for that, you don't want to be the one pumping money into it to get it up to snuff. (And I say your money because he can't get the loan on his own, so even though you'd have an agreement where he buys back the property later, you have the problem that he still might not qualify for a loan when he's out of the Navy).

 

[adjusterjack]

So if he just continued to pay the mortgage payments, how does the estate close.

What would happen to any other debt? Theres not much. An automobile loan for a car that schould cover the entire loan. and about $12k in credit card and misc debt.
But we also have a bout $10K in bank plus other assets that could be sold.

If we paid off the loan for the house, could we then use it as a rental until he is out of the navy?

There aren't a whole lot of choices. If the estate has enough money and/or other assets to pay of the debts without selling the house then your only obligation is to execute a deed from the estate to the son, record it, and give him the keys. Then it's his house and it's up to him to figure out how to pay for insurance, taxes, mortgage payments, maintenance, etc. An intrafamily transfer of ownership does not activate the due on sale clause. Same goes for the car. He can get it titled through the DMV's inherited vehicle process.

If the estate doesn't have enough to cover the debts, you'll have no choice but to sell the house to pay the debts, then write him a check for whatever is left.

Anything else can be, and is likely to be, a recipe for disaster. We see it here all the time. Especially from the people who said "Can't happen to us."

 

[zddoodah]

He only has one heir, an 18 year old son.

Just confirming: either the son's mother predeceased your brother or they were divorced. Correct?

The son really wants to keep the family home.

"The family home" means a house that your brother owned (presumably, solely) at the time of his death. Correct?

We are being forced to sell it because he cannot get a loan or anything.

I take it that the estate has insufficient liquid assets to pay off the mortgage. Correct?

I offered to buy the house for him and rent it out for the next 5 years and sell it back, but we have to buy it at appraised value of 121K.

First of all, why do you think you have to buy it for anything more than an amount sufficient to pay the mortgage and costs of sale?

Second, would you finance this purchase? Obviously, your answer to this question may also answer the first question.

Third, if you would finance it, are you sure you could rent it for enough to cover the mortgage, insurance, property taxes and maintenance?

Fourth, I'm confused about your use of "I" and "we" in the above sentence. Who are "we"?

Would he still be forced to sell the house to pay other debts?

I'm not sure I understand the question, and now I'm not sure that you understand your obligations as administrator of the estate. Your basic responsibilities are as follows: (1) identify and take possession/control of estate assets; (2) identify estate debt; (3) use liquid assets of the estate to pay debt and, if necessary, liquidate non-liquid assets for that purpose; and (4) once the first three steps are completed, you distribute whatever is leftover to the heir. These are your obligations as the administrator. Your nephew, as heir, has no such obligations. We don't have enough information to know whether you will have to sell the house to cover estate debt.

You would be well advised to retain an attorney to assist you with the administration of the estate. Otherwise, I strongly suspect you'll get something wrong, which could make you personally liable to creditors of the estate and/or to your nephew.