Real Estate Transaction Help

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TL;DR: MIL wants to help sister in law buy a house by either buying the new house for her or buying her old house from her until it can be sold. How to minimize MILs risk/exposure and avoid arms length issues, etc?

My wife's sister and husband want to sell their house and buy another. They have identified a house that they believe to be priced below market (it needs work). They are considering making a somewhat lowball offer and don't want to add too many contingencies.

Enter my mother in law. She has told them that she is willing to "help" facilitate the purchase. She would be able to make a cash offer on the new place, or buy the old place from them, allowing them to payoff the mortgage allowing them to secure a mortgage on the new home.

Enter my concern. Typically, her "help" ends up with her giving them large amounts of money. There has always been an imbalance in gifting between my wife and her sister. The score is probably in excess of $150k to $0...That's just known cash gifts and doesn't include years of paying health insurance, car insurance, hand me down cars, etc. That's my mother in law's business, and it is what it is, but i'd be lying if I said it's not irritating.

There are a few concerns about the possible deal: 1) the new house needs substantial work. Probably $30k as a low #. The old house will need a bit of work to sell as well. Obviously MIL will be paying the bill for all of that as well. 2) if they do it, what would be the best way to limit MIL's risk? 3) what are the rules surrounding arm in arm transactions like this? 4) MIL's. estate plan is 50/50 between her 2 daughters. While it's really none of my business, how do we protect our own interests here? I honestly believe my SIL will bleed her dry over time. Currently, her estate is around $2 million, this house will cost about $200k.

I help my MIL with her finances and she follows my advice, except when it comes to handing $ to her daughter. I don't expect to be axle to talk her out of this deal, but I want to minimize her risk/exposure and do as little damage as possible to her bottom line. I intend to tell her that ideally she shouldn't involve herself. Beyond that, what's the best way to handle the transaction?

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MIL buys house under LLC or trust, SIL sells her place, buys place from MIL's trust or LLC and obtains a mortgage?

alamo11 said:   MIL buys house under LLC or trust, SIL sells her place, buys place from MIL's trust or LLC and obtains a mortgage?
  Do you need arms length for mortgage appraisal?

Plus won't they incur closing costs multiple times this way? (Title Insurance, etc)

What if she loans them the money for the new house? Interest only with the understanding that they will PIF when they sell their house and obtain a mortgage on the new place? Any problems as long as they have a written mortgage agreement and use the current minimum applicable federal rate?

I'm going to talk to her about equalizing her gifts in her will as well. She has previously told us that she realizes the discrepancy, she may just not know what to do to correct it without writing big checks.

raringvt said:   What if she loans them the money for the new house? Interest only with the understanding that they will PIF when they sell their house and obtain a mortgage on the new place? Any problems as long as they have a written mortgage agreement and use the current minimum applicable federal rate?
 

Mom could provide sister an actual mortgage with an actual monthly payment, intended to last the full 30 years but can be paid off at any time. Of course, the risk for OP is that payments will be missed and much of the note will be forgiven without be repaid.

Or mom can refinance sister's existing mortgage.  Then mom holds the mortgage until the house is sold (and has to be repaid in order to clear the title).  Interest-only payments (or all accrued interest until sold, with no ongoing payments at all) will leave sister able to obtain a third-party mortgage for her new home.  The terms can even be creative and let mom participate in the sale price potential as well, if she's also going to fund the necessary repairs to prepare it for sale.

Actually transferring property multiple times through a chain of custody, seems unnecessarily expensive and potentially messy.

alamo11 said:   MIL buys house under LLC or trust, SIL sells her place, buys place from MIL's trust or LLC and obtains a mortgage?
  Is this OP's opportunity to "trick" mom into locking up her assets in a trust with 50/50 beneficiaries, so that the cash cant keep getting pissed away on one sibling?

Glitch99 said:   alamo11 said:   MIL buys house under LLC or trust, SIL sells her place, buys place from MIL's trust or LLC and obtains a mortgage?
  Is this OP's opportunity to "trick" mom into locking up her assets in a trust with 50/50 beneficiaries, so that the cash cant keep getting pissed away on one sibling?


Did we just become best friends? I like the line of thought. Wouldn't the same problem persist though? Assuming Revo trust so that MIL has access to her assets, she could still write checks to SIL with no restrictions. The only language I've ever seen in a Revo trust that addresses gifting inequality still requires some accounting of gifts, then offsets those at the time of trust distribution.

raringvt said:   
The only language I've ever seen in a Revo trust that addresses gifting inequality still requires some accounting of gifts, then offsets those at the time of trust distribution.

The concept is one thing, you still need to ensure the language is appropriate and that mom handles it accordingly. It'd mostly be a tool to encourage some self control, by clearly illustrating any imbalance in gifting activities. Or hopefully imply that the trust's money has been removed from mom's available resources (even if it's technically revokable ) so she feels less flush in her ability to continue gifting money to sister.

raringvt said:   TL;DR: MIL wants to help sister in law buy a house by either buying the new house for her or buying her old house from her until it can be sold.
 

All the other points aside, unless Mom is trying to become a landlord, I would avoid any scenario where she becomes the owner of the old house.  Either the old house is for sale or not.  Price it right and move on.  Let Mom help out with the new house in the form of loan or downpayment.

As an aside, you gotta let this stuff go.  My parents gave one of my siblings somewhere around $200k over about ten years before they passed.  It was always "just to help them out" because you know, they just seemed to find bad luck at every corner.  Some of it was ostensibly lent to them (never well documented) and some of it was of the "you can just make it up later" sort of thing - cars, car repairs, home renovations, tuition, medical bills, etc.  The long and short of it was simply that they were living beyond their means and using my parents as their safety net/emergency fund.  If they had a leaking roof or a totalled car or any other sort of catastrophe, they just hit up dear old dad.  The fact of the matter is that they DID need the money more than any of the rest of us, even if it was due to their own responsibility.  When they passed and I handled the estate, I just had to hold my nose as I wrote out the checks for their "equal share," as tempting as it would have been to simply tell them that "you already got your share of the inheritance."

dcwilbur said:   
raringvt said:   TL;DR: MIL wants to help sister in law buy a house by either buying the new house for her or buying her old house from her until it can be sold.
All the other points aside, unless Mom is trying to become a landlord, I would avoid any scenario where she becomes the owner of the old house.  Either the old house is for sale or not.  Price it right and move on.  Let Mom help out with the new house in the form of loan or downpayment.

As an aside, you gotta let this stuff go.  My parents gave one of my siblings somewhere around $200k over about ten years before they passed.  It was always "just to help them out" because you know, they just seemed to find bad luck at every corner.  Some of it was ostensibly lent to them (never well documented) and some of it was of the "you can just make it up later" sort of thing - cars, car repairs, home renovations, tuition, medical bills, etc.  The long and short of it was simply that they were living beyond their means and using my parents as their safety net/emergency fund.  If they had a leaking roof or a totalled car or any other sort of catastrophe, they just hit up dear old dad.  The fact of the matter is that they DID need the money more than any of the rest of us, even if it was due to their own responsibility.  When they passed and I handled the estate, I just had to hold my nose as I wrote out the checks for their "equal share," as tempting as it would have been to simply tell them that "you already got your share of the inheritance."

Well said, great post as always dcwilbur.  This sounds exactly like our scenario, DW and I have always worked hard & lived below our means, while SIL & BIL have always lived better than we have while having less income.  It's not so much the "helping out" as we know she would help us if we needed it...it's just the reason that they "need" it (lack of self control or regard for taking advantage of her willingness to help) that irks us.  We recently learned that it's now becoming a multi-generational issue in that she is paying for my niece to go to a private Kindergarten this fall while our son will attend a public Kindergarten this fall.  It's just hard to get past things like that--again, we don't want to send our son to a private Kindergarten...but they are, but only because they know they can get her to pay for it.  When I met my wife, in college, she was working to pay her own rent (shared apartment with 3 other girls) & bills.  Her sister went to the same school and lived in an apartment alone, yep, you guessed it, parents paid the rent & bills.  She must have watched her parents murder someone and is blackmailing them to keep quiet.  It's the only explanation I can think of. The sad part is, when it all comes down to it, my wife, as the responsible one, will be the one to care for her mom if she needs care, she's also the executor of her estate, so she'll do all of that work.  Sister will just keep taking all she can and make excuses as to why she can't help when mom needs care or can't help when it's time to clean out her house after death.  I'll have the discussion with my MIL, because as I said previously, she has brought it up before, but if she fails to act (equalizing gifts either currently or through estate planning), her inaction will speak for itself and we'll let it go.  We're fortunate (through our own hard work) to be able to provide for ourselves and not need to depend on someone else, but it is certainly a double edged sword.  My family operates much in the same way, but on a smaller scale financially.  My parents also enable my siblings and I've never asked for or received a dime.  Somehow, my family bothers me less, perhaps because my siblings are all at least trying, rather than just relying on my folks...and perhaps because there's less money involved.

raringvt said:   
dcwilbur said:   
raringvt said:   TL;DR: MIL wants to help sister in law buy a house by either buying the new house for her or buying her old house from her until it can be sold.
All the other points aside, unless Mom is trying to become a landlord, I would avoid any scenario where she becomes the owner of the old house.  Either the old house is for sale or not.  Price it right and move on.  Let Mom help out with the new house in the form of loan or downpayment.

As an aside, you gotta let this stuff go.  My parents gave one of my siblings somewhere around $200k over about ten years before they passed.  It was always "just to help them out" because you know, they just seemed to find bad luck at every corner.  Some of it was ostensibly lent to them (never well documented) and some of it was of the "you can just make it up later" sort of thing - cars, car repairs, home renovations, tuition, medical bills, etc.  The long and short of it was simply that they were living beyond their means and using my parents as their safety net/emergency fund.  If they had a leaking roof or a totalled car or any other sort of catastrophe, they just hit up dear old dad.  The fact of the matter is that they DID need the money more than any of the rest of us, even if it was due to their own responsibility.  When they passed and I handled the estate, I just had to hold my nose as I wrote out the checks for their "equal share," as tempting as it would have been to simply tell them that "you already got your share of the inheritance."

Well said, great post as always dcwilbur.  This sounds exactly like our scenario, DW and I have always worked hard & lived below our means, while SIL & BIL have always lived better than we have while having less income.  It's not so much the "helping out" as we know she would help us if we needed it...it's just the reason that they "need" it (lack of self control or regard for taking advantage of her willingness to help) that irks us.  We recently learned that it's now becoming a multi-generational issue in that she is paying for my niece to go to a private Kindergarten this fall while our son will attend a public Kindergarten this fall.  It's just hard to get past things like that--again, we don't want to send our son to a private Kindergarten...but they are, but only because they know they can get her to pay for it.  When I met my wife, in college, she was working to pay her own rent (shared apartment with 3 other girls) & bills.  Her sister went to the same school and lived in an apartment alone, yep, you guessed it, parents paid the rent & bills.  She must have watched her parents murder someone and is blackmailing them to keep quiet.  It's the only explanation I can think of. The sad part is, when it all comes down to it, my wife, as the responsible one, will be the one to care for her mom if she needs care, she's also the executor of her estate, so she'll do all of that work.  Sister will just keep taking all she can and make excuses as to why she can't help when mom needs care or can't help when it's time to clean out her house after death.  I'll have the discussion with my MIL, because as I said previously, she has brought it up before, but if she fails to act (equalizing gifts either currently or through estate planning), her inaction will speak for itself and we'll let it go.  We're fortunate (through our own hard work) to be able to provide for ourselves and not need to depend on someone else, but it is certainly a double edged sword.  My family operates much in the same way, but on a smaller scale financially.  My parents also enable my siblings and I've never asked for or received a dime.  Somehow, my family bothers me less, perhaps because my siblings are all at least trying, rather than just relying on my folks...and perhaps because there's less money involved.

  Your wife is the older sibling, correct?

Nope, 3 yrs younger

This is why I've told my parents to spend down to their last penny. It simplifies so many things.

BostonOne said:   This is why I've told my parents to spend down to their last penny. It simplifies so many things.
  I bet you make more money than all your brothers and sisters combined.



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