My mother-in-law recently passed away. She left her estate to her two children, my husband and his sister. She had a lot of outstanding debt with medical bills, and from my tallies — including the remaining mortgage on the home — she has $95,000 in debt. She has $25,000 in liquid assets, which will bring her debt down to $70,000.
She has a balloon payment of $81,000 due on her mortgage in less than six months. Her home is in very poor condition and is not really “livable,” according to my real-estate agent. The assessed value on the property is $150,000 due to the crazy inflation in the housing market right now.
Here is where it gets tricky: My sister-in-law has lived in this house rent-free for her life. She is now in her 30s with two children. The house has been falling apart around her, and she has never contributed to the upkeep of the property or repaired any of the major issues. She is also currently jobless, and has what I believe are mental-health problems. She refuses any help for her health issues.
The other tricky part is that my husband uses the garage area. He previously paid $300 a month in “rent” to his mother for years to cover this use for his tools, storage and other garage items. (As a side note, my husband has also covered medical expenses for his mother, paid her car off, carried out repairs on the property, and paid out of pocket to help his mother.)
My husband wants to buy his sister out
My husband wants to keep the house, keep his sister in the house, mortgage the property in our names — not his sister’s, she is not creditworthy — and pay his sister half of the value of the property to “buy her out.” This means we would need to take a mortgage out to cover a minimum of $70,000, then take out an additional loan for half of the assessed value on the property of $75,000 for his sister.
This leaves me in a hole of almost $150,000, and the proud new owner of a home that needs to be completely torn down! On top of that, this deal gives his sister $75,000. She has done absolutely nothing to deserve it, in my opinion. I have worked my whole life, and still do not have even close to that amount saved.
This leaves me in a hole of almost $150,000, and the proud new owner of a home that needs to be completely torn down!
He says that his sister inherited half of the estate and that is why she deserves to be “bought out.” I say that the entire estate is debt and she has inherited half of that debt, which she cannot pay.
I need a third-party opinion before I end up filing for divorce. Am I unreasonable to think that taking care of his sister and taking on all the responsibilities and debt of his mother’s estate is not the right decision, and that paying somebody who spends more on Amazon
instead of helping to pay bills is the wrong decision?
I don’t know what is the right answer. I don’t want to take on a third mortgage. We already own a rental property out of state, in addition to our home. I don’t want to pay his sister a single dime. I don’t want to divorce my husband over this. I don’t want to have a property that costs me $1,200 a month that I can’t do anything with. I can’t live there, we can’t rent it out, and we can’t collect money from his sister for living there. I am so lost and so heartbroken, and have no idea what to do.
Please help me with some kind of advice, something to make this nightmare more understandable.
No-More Silent Witness
I’m on your side.
Your husband would be enabling his sister, and putting both of you into unnecessary debt, for the sake of an emotional attachment to both. Your husband would find out that he has a greater and more life-changing emotional attachment to your current home if he were in danger of losing it.
This is a marriage, and you should enter into a commitment like this together — not unilaterally. Under this arrangement, his sister has no incentive to save that $75,000, by your calculation, change her lifestyle, start planning for retirement or look for part-time work. No deal.
About your calculation: If the house is worth $150,000, your husband would receive $80,000 after the mortgage is paid off, which does not include any legal fees or other taxes. That’s $40,000 each, not $70,000 for your sister-in-law. Including the debt, your husband and sister-in-law each own about one-quarter of the home.
Your husband would soon find out that he has a greater emotional attachment to your current home if he were in danger of losing it.
Furthermore, this house is an asset that needs extensive repairs and management even if you were to rent it out. Given what you say about his sister’s ability or willingness to work, she is not a good candidate for a tenant, even if she were prepared to pay rent in the house after the refinancing.
Or buy more time: Take out a home equity loan to kill the balloon payment, and write a lease with your sister-in-law for X amount of years that should she choose to live there with her kids — assuming they are minors — failure to pay her share of the mortgage, upkeep and taxes etc. results in a reduction in her share of the equity.
Your husband wants to help his sister and presumably benefit from buying a home at a relatively low price with a future increase in value, which is not a given. Either way, all of that will take time, money and additional property taxes. Buying out your sister-in-law while allowing her to live there rent-free is a risky proposition.
Enlist an objective third party — an accountant or financial adviser — who can outline the cold, hard reality of your savings and expenditures, and the repayments on such a loan. Crucially, they can explain how this would impact not only your day-to-day finances, but your retirement plans and long-term financial security.
By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
Check out the Moneyist private Facebook
group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
More from Quentin Fottrell: