Real Estate

how to divide ownership of a house with family member who stopped contributing 8 years ago?

  • Last Updated:
  • Jan 14th, 2019 1:52 am
[OP]
Newbie
Feb 24, 2011
60 posts
11 upvotes
Burlington

how to divide ownership of a house with family member who stopped contributing 8 years ago?

My brother and I bought a house together back in 2006 for $270k. We both contributed 50% to the mortgage between 2006 and 2011.

My brother moved out in 2011 and stopped contributing to the mortgage, but his name is still registered as the half owner of the house. I continued to pay the mortgage on time since then.

My mortgage is up for renewal in 3 months. I have extra cash sitting around and I just want to pay off the remaining mortgage entirely.

My brother and I started a dialogue about whether it makes sense to change ownership of the house to be entirely under my name since he hasn't been responsible for it any way since he left.

If I choose to sell the house because I want the capital to do other things, how do I determine how much of the house belongs to him?

Is there a formula I can use to calculate ownership?

NOTE: Our parents have been living in this house for free since as long as we have had it. We jointly cared for them until my brother moved out. Since Then, I've been the primary care giver to my parents.
26 replies
Deal Addict
Feb 25, 2007
2347 posts
291 upvotes
wow, this going to be messy to calculate, you should of bought him out in 2011, now 7 years lapese, and its been record increases, but since he didn't contribute during this time, I really hope you guys work out something peacefully
Last edited by rogerrabbit168 on Jan 12th, 2019 6:13 pm, edited 1 time in total.
[OP]
Newbie
Feb 24, 2011
60 posts
11 upvotes
Burlington
rogerrabbit168 wrote:
Jan 12th, 2019 4:59 pm
wow, this going to messy to calculate, you should of bought him out in 2011, now 7 lapese, and its been record increases, but since he didn't contribute during this time, I really hope you guys work out something peacefully
Thanks, my brother is a cool person so I'm sure we can work something out. My brother suggested the possibility of him paying all the mortgage, property tax, insurance, house upgrades etc... that he missed out on since 2011 so that we can both be back on 50/50 contribute. In theory, that means a 50/50 ownership would seem fair to all parties? That sounds like such an easy solution if he realizes he is in a financial position to do this. Did either of us overlook anything regarding this scenario?
Sr. Member
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Jan 12, 2017
815 posts
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YK
When the house was purchased, what did the legal agreement say about paying/defaulting on the mortgage? What written agreement did you two have regarding care of your parents?
[OP]
Newbie
Feb 24, 2011
60 posts
11 upvotes
Burlington
NoWynne2018 wrote:
Jan 12th, 2019 5:16 pm
When the house was purchased, what did the legal agreement say about paying/defaulting on the mortgage? What written agreement did you two have regarding care of your parents?
Oh boy, it will take a long time to find the legal document on mortgage once I get home.... As for parents, it was just a mutual expectation that we jointly care for my parents up until 2011, and that once my brother moved out, I'll take care of them by providing them shelter and resources. It was all kind of implied and nothing was discussed.

As for the house, I don't remember at all what we discussed when he left. It seemed like he didn't care about the house at the time because he was getting married and was more interested in buying a new house with his wife. And I didn't care at the time either. So we forgot. And when the first mortgage renewal came up for our house, we were both too distracted by our jobs to think much about it, so we told the bank just do the same thing as before, not fully educating ourselves on what that would really mean.


And I just kept paying mortgage because I didn't give it much more thought until now.

I guess you can see that neither of us are that financially responsible....but my brother is a nice person. So i'm sure we can figure something out. We figure other people must have had this situation before, and that there's probably some formula we can follow?

My brother asked what if he pays back what he's missed out on since 2011 in terms of mortgage, property tax, insurance, house upgrades etc...? is that the easiest solution to bring us back to 50/50 owners in every sense of the concept? Legally and fairly?
Deal Addict
Apr 21, 2014
2091 posts
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Alberta
Logistically that makes the most sense. Does he have the money to pay you 50% of the mortgage and home improvements for the last 8 years.

It’s not really fair because now the house is worth substantially more. I wonder what would be his response if it decreases over that time. In the end it’s family and I think your brother should just pay you his 50% for the last 7 years.
Deal Addict
Aug 30, 2011
3311 posts
1034 upvotes
Ottawa
Could you figure out the value of the house in 2011, and retroactively buy him out for his share of the equity at that time?
Jr. Member
Jun 14, 2018
144 posts
175 upvotes
It's pretty clear that neither of you wants to make this too messy. Take his suggestion and just move on.
[OP]
Newbie
Feb 24, 2011
60 posts
11 upvotes
Burlington
OttawaGardener wrote:
Jan 12th, 2019 6:24 pm
Could you figure out the value of the house in 2011, and retroactively buy him out for his share of the equity at that time?

Oh, I see what you mean. Are you suggesting a mathematical formula that looks like this:

e2019 = e2011 * (1+r) ^ n

Where the variables are defined as:

n : number of years my brother did not contribute to the house mortgage
r : annual interest rate for the last n years

e2011 : my brother's equity in the house as of 2011 described by the formula 0.5*(h2011 - m2011)
h2011 : house value in 2011
m2011 : remaining principal amount on mortgage as of 2011


So as an example, let's say our house was worth $400k in 2011, and our remaining mortgage at that time was $200k. And we both agreed to an annual interest rate of 5% over the last 8 years, then I owe my brother something like:

e2019 = 0.5*(400 - 200)*(1+0.05)^8
e2019 = 147 745.54

So this means I have to pay my brother about $147.7k to buy out his remaining portion today?
Last edited by rematakla on Jan 12th, 2019 8:16 pm, edited 1 time in total.
Deal Fanatic
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Mar 23, 2008
9841 posts
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Edmonton
Unless there’s a signed contract outlining things, “legally” isn’t really a concern. It’s whatever the two of you can work out.

From my perspective, there seems to be two choices.

A) Calculate the value of the house as of 2011, both resale value and equity status. And use that to calculate a buyout from your brother.

B) Calculate your brother’s share of payments since he stopped. Mortgage, taxes, maintenance. Then calculate the current value of the house and equity in it. Use the equity to calculate your brother’s buyout, and subtract the payments he “owes”.

If the house has appreciated a lot (aka GTA), then B) is the most fair to your brother. If there hasn’t been much appreciation in your market, it won’t make much difference.

Or you could figure out both scenarios, and pick a number in between.

C
[OP]
Newbie
Feb 24, 2011
60 posts
11 upvotes
Burlington
CNeufeld wrote:
Jan 12th, 2019 8:12 pm
Unless there’s a signed contract outlining things, “legally” isn’t really a concern. It’s whatever the two of you can work out.

From my perspective, there seems to be two choices.

A) Calculate the value of the house as of 2011, both resale value and equity status. And use that to calculate a buyout from your brother.

B) Calculate your brother’s share of payments since he stopped. Mortgage, taxes, maintenance. Then calculate the current value of the house and equity in it. Use the equity to calculate your brother’s buyout, and subtract the payments he “owes”.

If the house has appreciated a lot (aka GTA), then B) is the most fair to your brother. If there hasn’t been much appreciation in your market, it won’t make much difference.

Or you could figure out both scenarios, and pick a number in between.

C
Thank you. Does my formula in Comment #9 make sense for your option A? Because then in option A, all we have to do is decide on an interest rate?
Deal Expert
Aug 2, 2001
16036 posts
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rematakla wrote:
Jan 12th, 2019 5:08 pm
Thanks, my brother is a cool person so I'm sure we can work something out. My brother suggested the possibility of him paying all the mortgage, property tax, insurance, house upgrades etc... that he missed out on since 2011 so that we can both be back on 50/50 contribute. In theory, that means a 50/50 ownership would seem fair to all parties? That sounds like such an easy solution if he realizes he is in a financial position to do this. Did either of us overlook anything regarding this scenario?
It would be fair, for either party, to be compensated at the rate of an average GIC/HISA for money out of pocket.

If your brother is paying you for all the years he missed out on, it should come with 2-3% interest as you spent a bunch of money on these expenses already.
If you are paying out your brother for the value of the home in 2011 you should pay him 2-3% interest because you got an interest free loan on the money that is his equity.


Your solution of him paying you "back pay" for all the costs does not seem fair to me because he did not shoulder any of the risk. He now benefits from a large rise in real estate value. It would seem fairer for you to buy him out, and because it's 7 years later, you have to pay an amount to cover the interest on his money that was tied up. You are then shouldering the risk/reward appropriately. But without knowing what the whole scenario was around him walking away it's tough to say if that's truly fair.
[OP]
Newbie
Feb 24, 2011
60 posts
11 upvotes
Burlington
TrevorK wrote:
Jan 12th, 2019 10:27 pm
It would be fair, for either party, to be compensated at the rate of an average GIC/HISA for money out of pocket.

If your brother is paying you for all the years he missed out on, it should come with 2-3% interest as you spent a bunch of money on these expenses already.
If you are paying out your brother for the value of the home in 2011 you should pay him 2-3% interest because you got an interest free loan on the money that is his equity.


Your solution of him paying you "back pay" for all the costs does not seem fair to me because he did not shoulder any of the risk. He now benefits from a large rise in real estate value. It would seem fairer for you to buy him out, and because it's 7 years later, you have to pay an amount to cover the interest on his money that was tied up. You are then shouldering the risk/reward appropriately. But without knowing what the whole scenario was around him walking away it's tough to say if that's truly fair.
Your solution make sense. I'll answer your last inquiry incase it gives you any insight. In 2011, my brother got married and bought another house to start his own family. My brother said he wanted to put all his money towards his new house, and not contribute to the current house I co-own with him. I said sure. The discussion must have lasted a brief two minutes and we did not revisit it again. And I just went on paying for all aspects of the house and caring for our parents by myself.

Today, both my brother and I are leading completely separate lives, and our mortgage renewal is coming up. He has his own family to worry about. I have to continue to take care of my parents as well as try to start another business. So both my brother and I have to evaluate our assets to know what we can do next with our families and my business
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Jan 27, 2004
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T.O. Lotto Captain
TrevorK wrote:
Jan 12th, 2019 10:27 pm
It would be fair, for either party, to be compensated at the rate of an average GIC/HISA for money out of pocket.

If your brother is paying you for all the years he missed out on, it should come with 2-3% interest as you spent a bunch of money on these expenses already.
If you are paying out your brother for the value of the home in 2011 you should pay him 2-3% interest because you got an interest free loan on the money that is his equity.


Your solution of him paying you "back pay" for all the costs does not seem fair to me because he did not shoulder any of the risk. He now benefits from a large rise in real estate value. It would seem fairer for you to buy him out, and because it's 7 years later, you have to pay an amount to cover the interest on his money that was tied up. You are then shouldering the risk/reward appropriately. But without knowing what the whole scenario was around him walking away it's tough to say if that's truly fair.
Its not “fair” but it seems fair to them. They are bro’ing it out right now. I’m sure they both know someone is losing or gaining a bit. But they seem to have a good family dynamic.
And theres good signs... His bro left 7 years ago. And the OP aint even mad. He’s just trying to figure out how to make a clean break and start fresh.
Deal Expert
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Jan 27, 2004
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TrevorK wrote:
Jan 12th, 2019 10:27 pm
It would be fair, for either party, to be compensated at the rate of an average GIC/HISA for money out of pocket.

If your brother is paying you for all the years he missed out on, it should come with 2-3% interest as you spent a bunch of money on these expenses already.
If you are paying out your brother for the value of the home in 2011 you should pay him 2-3% interest because you got an interest free loan on the money that is his equity.


Your solution of him paying you "back pay" for all the costs does not seem fair to me because he did not shoulder any of the risk. He now benefits from a large rise in real estate value. It would seem fairer for you to buy him out, and because it's 7 years later, you have to pay an amount to cover the interest on his money that was tied up. You are then shouldering the risk/reward appropriately. But without knowing what the whole scenario was around him walking away it's tough to say if that's truly fair.
Its not “fair” but it seems fair to them. They are bro’ing it out right now. I’m sure they both know someone is losing or gaining a bit. But they seem to have a good family dynamic.
And theres good signs... His bro left 7 years ago. And the OP aint even mad. He’s just trying to figure out how to make a clean break and start fresh.

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