Sibling rivalry over family home: No one wins

Jul 31, 2010 — Washington Post

Benny L. Kass

Q: Mom died a year ago, leaving the family home to my brother and me. I live in the house and would like to stay there, but my brother, who lives in California, wants to sell it and take his half of the proceeds.

The house is free and clear of any mortgage, and I have been paying the real estate taxes and insurance since our mother died. However, I do not have enough income to refinance the house and buy him out.

While we generally are on good terms, my brother is now threatening to hire a lawyer. What can I do?

A: If it is any consolation, you are not alone with this problem. It unfortunately is very common -- and there are few solutions that will satisfy both of you.

Your problem is similar to that facing married couples in the midst of a divorce. In those situations, because the parties are already in court, most disputes are resolved by the judge. The court cannot, however, change lenders' refusal to allow the party not keeping the house to be removed from their mortgage-loan obligations.

Have you explained your financial situation to your brother? Does he really want to throw you out of the house, or is it only about money? Can you agree on the market value of the house? If not, then you should arrange for an independent appraiser to provide a valuation. Some people use what is known as the "three-appraiser" method. Each party pays for its own appraiser. If the difference between the two evaluations is less than 10 percent, they split the difference, and that is the agreed-upon market value. But if the appraisers' values are far apart, the two parties together hire a third appraiser, whose decision will be final.

I use this method as a last resort; it's time-consuming and expensive to pay for three appraisals.

Once you have agreed on the market value of the house, I would deduct 6 percent, which is about the cost you both would pay if you had to retain a real estate broker to sell the house. Then offer to buy your brother out for half of that post-commission amount. Your brother could balk at having to reimburse you for the real estate taxes and insurance payments you have already made, because you were not paying rent for his ownership portion of the house.

How will you pay for it? Clearly, the best approach would be to find a mortgage lender willing to give you a loan. Shop around. Keep in mind that you need to borrow only half of the value of the house. Let's assume that you and your brother agree that the house is worth $400,000. That means you will owe your brother $200,000. Many lenders -- even considering your low income -- might be willing to give you a mortgage, because there will be plenty of equity should you default.

But please talk with a lawyer before you commit to any loan. There are still a lot of loan sharks out there who will try to take advantage of your situation.

If you cannot obtain a loan, see whether your brother will allow you to sign a promissory note and a deed of trust. You would agree to pay him monthly for a period of time -- say, five or seven years -- at which time the entire mortgage balance would come due. This is known as a "balloon note." Hopefully, by that time you will be able to obtain a new loan in your name; if not, then you could be forced to sell.

But your brother wants cash now. He, or his attorney, will threaten that if you do not list the property immediately for sale, he will file a lawsuit known as a "partition action." This simply means that the court will be asked to sell the house -- either at the courthouse or through a real estate agent -- and the proceeds will be divided equally between the two of you. Partition suits are an acceptable means of resolving property disputes. The courts throughout this country have consistently said that "if two or more people cannot agree on the disposition of their commonly held property, we will force the sale through a partition action."

You will then need an attorney to assist you. Your attorney will advise your brother's attorney that litigation is time-consuming, expensive and always uncertain. More important, the only ones who win when a partition suit is filed are the attorneys -- and the speculator who ends up buying the house.

Here's an alternative that could interest your brother: Can he qualify for a mortgage loan? If so, he could borrow, say, $200,000, and you would agree to pay him rent for the half of the property that he owns.

Or, you could agree to sell the property to him and he would pay you half of the value. With that money, you could stay on as a tenant or use the proceeds to rent a property elsewhere or buy a small condominium or cooperative unit.

I have personally handled several partition suits between siblings. In the end, neither party was happy.

Benny L. Kass is a Washington lawyer. This column is not legal advice and should not be acted upon without obtaining your own legal counsel. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036.