Holding mortgage on inherited camp for family member?

[Fearchar]

My family owns a lake front camp in the Adirondack mountains.  Originally bought/built by my Grandfather and passed onto to my Dad and Uncle.  There were other properties and eventually my Dad and Uncle split them up with Dad getting the camp.  Double lot; so my Dad built a garage with additional beds and bath above it.  Easily sleeps a dozen people with great dockage for boating, swimming or just hanging out.  There are loons on the lake and it's often a rather quiet place.  My father gifted it to myself and three sisters with the stipulation that it must eventually be sold, which is this year.  He understood how multiple owners of a camp can lead to contentious situations. 

One of my sisters would very much like to purchase it.   
We (other siblings) insisted on an formal appraisal, which she now has.
There are 4 of us siblings.

Purchasing sisters asked me if I could hold a family mortgage for my share at 5% for maybe 10 years or so.
She has the finances, but does not want to withdraw funds from her accounts.
Her home is paid off, so she is thinking of taking a home equity loan, but that would be at 7.25%.

One of my other sisters does not want to do anything like that and prefers to be bought out completely.
I don't know what my third sister may think of this, but suspect she'll push to get a higher appraisal.
So, more family drama is likely.

Anyhow, my wife is no longer interested in going to camp.
However, my 20 something year old children enjoy camp a great deal.
One child has Jet skies and the others see the party potential, which can be contentious depending on how responsible they are. 

I'm motivated to work with my sister that wants to buy the camp and am willing to give her favorable terms.  
Part of my motivation is that she in turn give my children favorable terms to visiting/staying at camp.
Realize that I'll need a signed promissory (or mortgage) note from her; and a properly executed Deed of Trust that should list me as a lien holder.

I'm pretty much clueless as to how this may work out from an inheritance tax perspective.  It was deeded to us siblings a long time ago.  At one time, my Dad would gift us $$ each year that was below the estate tax threshold.  He stopped doing that after deeding us the camp.  He paid the taxes instead.  So, I'm wondering if all of this may be classifiable as a gift from either my Dad or purchasing sister?  Also, am I really selling the property if I hold a lien on it?  Would really like to defer taxes on this since I currently have good income from employment. 

An alternative would be for me to become some type of partner with my purchasing sister.
This could possibly allow me to avoid reporting this as income.

My other sisters are in much lower tax brackets.
So, they will probably not realize the same type of tax hit from all of this.

[steelpony10]

Fearchar ,

       Find another buyer and/or greatly simplify what should be an easy task. Hire professionals to handle everything and split the costs and taxes.

        I have a brother in law like your sister who tries to formulate deals in his favor with family members. Don’t go there. She can have it but at closing the rest of you should just get a fat check like any other business deal. 

[newtecher]

Sounds like lots of family drama either way. I will try to make sure to leave only financial assets to my kids.

[Fearchar]

Understand to desirability of a clean cut deal.

However, I have many fond memories of camp.
Can recall being there when I was 4 years old and catching trout off the dock.

My kids were there from birth and truly love the place.
This is despite a fish hook in the face trip to the nearest ER.
Had to call in the Doctor for that.
Said he handles a few of those every summer!


Anyhow, a possible consequence of a clean cut will be a bigger cut by Uncle Sam and company!

[steelpony10]

Fearchar ,

       Ha. Ha, sentimentality and greed. Call me cold hearted then. I have no feelings for things only people, the past is never coming back and can’t be relived or changed. How much dough does one need? Only you know the details but you’re going to be dealing with close relatives the rest of your life. LTC can take everything, a clean break mean’s only money. Having any other financial ties to anything else…. Anyway as you can see I don’t like loose ends. 🍀

[liftlock]

Fearchar,

Here a a couple of random thoughts:

I like your idea of working with your sister to reach favorable terms for access to the lake property the benefit of your kids. There are probably several good options for accomplishing that.  A good lawyer and accountant would appear to be an essential part of that. It might be possible for the family to agree on using a common lawyer to fairly represent everyone's best interests. Otherwise each person may want to hire their own professional to represent their own interests in what ever transaction evolves.

If your father stipulated that the property be sold this year, it suggests a new deed and record of sale would need to be recorded in the local property records office. How is the property titled now?

One idea for getting agreement on a fair market value for the property would be to have each sibling hire their own appraiser and agree that the property would be valued at the average of all appraisals. 

I think the value of the property will need to established at the time it was gifted to the siblings (and recorded in the property office) to determine everyone's cost basis in the property.

There is nothing to say that the property has to be sold at Fair market value. The sale can be done privately at what ever price everyone can agree on.

Your family may want to consider gifting strategies as a means to exchange ownership shares in the property over several years.  Each person can make a tax free gift $17,000 per year to another person in 2023.  One can make gift on Dec 31 and repeat the process on January 1. Married couples can gift double the gift amounts.  Years ago my mother wanted to gift our childhood home to my youngest sister. See worked with a lawyer and obtained an appraisal to reach agreement with everyone on fair market price sale to my sister. She gave my sister a mortgage and made tax free gifts the other sibling sat year end and again at the start of the new year.  You might consider buying the property jointly with your sister and transferring shares to her over time via gifts from her to you.  Holing a mortgage is an other reasonable idea.

You might base rights of access to the camp based on each parties share of ownership in the property. You might possibly agree on rental rate if one party wants to use the property more than the percent they own.

I have great childhood memories of being away a summer camp.  It would be a great gift to pass those memories onto your kids if you can.  Good luck with it.

[FD1000]

Apr 8, 2023 15:37:00 GMT steelpony10 said:

Fearchar ,

       Ha. Ha, sentimentality and greed. Call me cold hearted then. I have no feelings for things only people, the past is never coming back and can’t be relived or changed. How much dough does one need? Only you know the details but you’re going to be dealing with close relatives the rest of your life. LTC can take everything, a clean break mean’s only money. Having any other financial ties to anything else…. Anyway as you can see I don’t like loose ends. 🍀

+1
Money doesn't have sentiment, memories, and feelings.
It's a real estate transaction. Any sibling who doesn't agree with the appraisal, can hire their own appraiser. 
Do whatever it takes, to sell it, split it and finished any loose ends.

My SIL is involved with his family for years after his grandad/mom passed away. It's the grandad fault leaving a complicated will. 

[johntaylor]

"Neither a borrower nor a lender be..."

[bobfl]

I would rather lose a friend when I say "no" to a loan, then lose a friend when I try to get my money back. After the loan they think it is their money and I am trying to steal their money. They become very insulted. "If I had enough money to pay you back, I would never have needed to borrow the money in the first place". Their twisted logic.
...Based on my multiple experiences of getting screwed.

Regarding, "I'm motivated to work with my sister that wants to buy the camp and am willing to give her favorable terms.
Part of my motivation is that she in turn give my children favorable terms to visiting/staying at camp.".
Get each aspect nailed down and in writing!!! Easier before the fact.
Afterwards she will be insulted that you would even ask. "It is my property! And you and your kids are trying to take advantage of me." 1.The loan and 2. Her being nice to your kids are two separate issues. Get each in writing.

Watch the People's Court or something similar. That's what most of the cases are about. Nice guys like you.

[win1177]

I would be VERY careful with mixing family and business/ investments/ loans! Been burned too many times by family. I’m a physician, and my siblings have viewed me as “deep pockets”, even though I payed my own way through school and never got any “money” from anyone, other than student loans (fully paid back years ago).

My mother left her estate in a “trust” with me and her third husband as co- trustees. Because I had done well with my own investments, mom had me manage hers too. All for free for her. She did VERY well for decades (with my investment recommendations), accounts grew to well over 2 million (on a school librarian salary), and my brother (real estate developer) managed her rental properties. Long story short, my brother wound up getting a home mortgage from my mother before she passed on, very favorable terms but did NOT record the loan. We didn’t know any of this. He then went and got a second mortgage from a bank (which didn’t know about the first mortgage), and because the bank recorded first (even though the loan was about seven years newer), when my brother declared bankruptcy, we (other four siblings) we’re screwed over as we were “second in line”. When he lost his house, we got NOTHING. $180K loss! In addition, he had “borrowed” nearly 500K from her accounts and we were unable to get any of that back. Total loss. 

Now I am having to “manage” her Trust since her third husband is still alive, but nearly 90 and shacking up with wife number FIVE, who is ALWAYS demanding more money each month. The trust will not liquidate until he dies, and he gets all the income each month. I’ve had to hire several attorneys, on my own dime, to manage this nightmare.

It has NOT been fun, and needless to say, my brother and I are estranged. The story has more “chapters”! I’ve had two other brothers who both “borrowed” money from me (in tough times) and I had a HELL of a time getting any of the principal back. Both were interest free loans to help them through tough times.

Needless to say, I do NOT loan money to anybody now. Mixing family and business or money is a recipe for heartache IMHO. If you do, you need to have all the paperwork drawn up by an attorney and all properly recorded, etc.

Win

[richardsok]

Count me in agreement with the "beware!" sayers.

I also have colorful history "lending" and "investing" with one sibling, one best college buddy and one cousin. In all three cases my net return was somewhere just a bit north of zero -- at best. bobfl summarizes the kinds of replies I got when the loans fell past due. In the end, the monetary losses did nothing to change my lifestyle but rankled mightily in my reflection that, ME, "Mr. Savvy", had been duped.... and that the scofflaws managed to loudly express their righteous indignation.

It's much easier and prudent to just say no.

I would add I understand the sentimental reasons for your wish to be generous, but feel you must not make this a "family" transaction. I would say, "Have your lawyer call my lawyer" and have all the details worked out at arms length. This should be zero personal, if at all. If I were to try to create such a deal, it would be something like this....

Your sister sells you her equity in the property for One Dollar. Then you give your sis as generous rental terms as you like, with the proviso that YOU HOLD 100% title to the property. Have a specific "end lease date", say Jan 1 2033. Until that date all her payments will be regarded as rental payments. As a renter, she has full use of the property but she acquires NO equity before the last rent payment is completed ON TIME when you are contracted to sell the property back to her for one dollar. She also agrees to welcome your kids to use the property, say, two weeks a year or whatever. She may not make any additions or improvements to the property that might muddy your full ownership.

(Of course, if she is unable to keep up with her rents, then she defaults on the lease and you owe her nothing.  I have no doubt, in such a default, you will be fair with her and return a good portion of her rent payments as you keep the property, but you are in no way obligated to do so.)

All this should come from your lawyer to her lawyer, not from you.

Again, better to say no to family business deals, but if you can't.... then have the lawyers handle it. No "kitchen table negotiations!"

My two cents.

[bobfl]

Another funny one. I sold one of my houses to my brother-in-law. I gave him a GREAT deal and when all the negotiation was over, I said, just because I don't want to hear any complaints, I will take another $2,000 off this final price incase you need some unforeseen repairs. I tried to have everything perfect for him before the closing. Then he had to spend less than $300 on some siding. He started bitching. I told him I took off $2000 extra just for things like this. His response was, "I don't remember that."
Another, my brother thought he should always get more in any family transaction. Why? Because he was the oldest. :-)

(Edited) Update:
Ten minutes ago we were watching the PBS show on hummingbirds. Good show.
I hear a bang. Kept watching. Then another bang, bang.
I asked, "Could that be that goose?" (He thinks he owns the pond.) We get up and sure enough the big goose is banging on the glass door to be fed. My wife gets him some bird seed. She reaches down and he gives her a peck on the hand because she did not feed him fast enough.
Interesting how some people (and this goose) can feel so "entitled".

[anitya]

Fearchar,

I can not add more to what others have said. Send each of these guys a box of chocolates for sharing their personal life anecdotes.

If you end up getting entangled (I am guessing, likely) and not just have a clean sale (and join the other two sisters), after you conclude the transaction, we would like yearly update on how things are.

P.S.: you know I am not active here (or anywhere else for that matter), is there a way I can receive an email notification of updates to this thread?

[chang]

anitya you can bookmark the thread (Thread Options > Bookmark).

[archer]

Family and friends never mix well with money in my experience. Where the problems start is when one party proposes something that isn't in keeping with standard business procedures, such as cheap loans, delayed start to financing, or anything else they might dream up that a bank or anyones attorney wouldn't condone. Even if everything is done in keeping with standard market practice, there are still strings attached. We are born with strings attached to our families. By themselves the strings aren't a problem. Add a conducive situation to pull on them and that's when the potential for problems arise.

[yogibearbull]

Apr 16, 2023 20:15:10 GMT anitya said:

Apr 16, 2023 20:05:47 GMT chang said:

anitya you can bookmark the thread (Thread Options > Bookmark).

I have many bookmarked threads but do not recall ever receiving email notifications of updates to those threads.   Please reply to this and I shall let you know if that works.

Check Profile/Edit Profile/Notification and make sure that email notification is clicked for Bookmarks. Normally, one gets notifications also for the threads they have started and for threads that they have posted on. Choose "Instant" for immediate notifications, "Daily" for once/day digest. But all email Notifications can be turned off too.

[Fearchar]

I really like richardsok , suggestion.

That is if you're going to be generous, then be sure you're holding the trump cards.

All of my sisters are good siblings; this one included.
But I also understand that everybody's siblings are good until they're not.

[FD1000]

I think we can make 3 movies from the above real life stories.

[bobfl]

Apr 16, 2023 17:43:34 GMT richardsok said:

Count me in agreement with the "beware!" sayers.
..........

All this should come from your lawyer to her lawyer, not from you.

Again, better to say no to family business deals, but if you can't.... then have the lawyers handle it. No "kitchen table negotiations!"

Richard,
Great answer, as usual.
Fearchar,
Some considerations for a "rental":
1. Property Tax and insurance.
2. Someone fell off the roof of one of my rental houses years ago while doing unauthorized repairs. Cost my insurance company $300,000 because I had an umbrella policy. That's after the person said it was his fault. Never should have been on the roof. If there is a lawsuit, since you are "deep pockets", and you own the place, they will go after you. (I think of all the potential visitor injuries at a camp.)
3. As was mentioned, there is the issue of repairs. (Example: Many people in this 5 year old subdivision, are having to replace their A/C air handler coils. The freon alone is about $1000. Renewed termite perimeter treatment $1500 to $2000. A roof? Don't even want to think about it. Had two replaced on rental houses. 
Guess it could be net, net, net. But you can never get away from the liability.
Maybe let her get an independent loan and take that money you make and you and your kids take a trip around the world. Or at least pay full price to visit the camp.

I guess my short term memory is getting shorter. Can't remember why you are not considering your other sister's advice, to get out of this deal and let the buyer secure their own financing.
Guess this deal would be a nice gesture to your sister, because if she had major problems she could just walk away from the rental and leave you with the mess. Just like Blackstone did to two big buildings in California recently.
Incidentally, I no longer have rental houses.

[mnfish]

Apr 16, 2023 16:37:44 GMT win1177 said:

Because I had done well with my own investments, mom had me manage hers too.

Win, that is definitely a sad story about family.
I'm curious that if you were managing her portfolio how someone could take $500k from it and not notice? Were you not privy to the account statements?

[win1177]

Apr 17, 2023 13:05:37 GMT mnfish said:

Apr 16, 2023 16:37:44 GMT win1177 said:

Because I had done well with my own investments, mom had me manage hers too.

Win, that is definitely a sad story about family.
I'm curious that if you were managing her portfolio how someone could take $500k from it and not notice? Were you not privy to the account statements?

Mnfish,
It’s sort of complicated, but here’s a short summary. My brother got a series of mortgages on the different investment properties, all from local banks he did business with (smaller town). He said he was “full owner” of the properties when in reality he was 20% owner (1 of 5 siblings).

By the time we realized what was going on, it was all done. Retained attorney, worked out a “compromise deal” with brother, he started paying the rest of us back for the money he had borrowed, so the Limited Partnership continued to pay the six mortgages (thus “recognizing” the loans). About six months later, brother stopped paying, then declared bankruptcy, and walked away leaving us with approximately 500K in mortgages (the LP owed), plus the home mortgage for about 180K he had obtained but NEVER recorded. When he declared bankruptcy, we found out he had not recorded mortgage, so we were second in line behind a local bank. Our attorney said since we had started paying 500K mortgages, we had “recognized them as legitimate”, even though they were obtained fraudulently. Therefore we had to continue to pay them.

Thats a short summary, but he basically screwed all his siblings over and stuck us with close to 800K in debt, which I managed to gradually pay off over a ten year period, by selling properties and directing all income to debt payments. Very frustrated with the whole process, so have always been VERY careful about mixing “family and business”.

Win

[yakers]

🐀🐀🐀

[johnsmith]

Fearchar,

Like others have said - Money & Family/Friends are fraught with complications.

The way I deal with it is - when I lend money to friends/family, in my head it goes out with no guarantee of coming back, so I maintain my relationship with family/friends regardless of whether the money is returned. It's simply emotional/logical reasoning to allow me to maintain the relationship, which I feel is more important than the money.

If the friend/family is not important enough, I would not lend the money in the first place.

I second the poster saying - get a decent attorney & accountant involved so that the pricing and agreement is fair to all siblings, make sure all the siblings are happy with the outcome (flexibility and consensus among all is key here).

I know some real estate is sold with a right that the renter can purchase the property for whatever the highest price the market could get. So if someone wants to buy the property for $X, the renter could say, I'll pay $X to buy the property. You could use that to value the camp, if the highest bid comes in at $X, sister would pay $X for the property.

Partnering with your sister (if you can), is also a nice thing to do for a sibling.

[mnfish]

Apr 17, 2023 13:44:50 GMT win1177 said:

Thats a short summary, but he basically screwed all his siblings over and stuck us with close to 800K in debt, which I managed to gradually pay off over a ten year period, by selling properties and directing all income to debt payments. Very frustrated with the whole process, so have always been VERY careful about mixing “family and business”.

Win

Win, 
Wow. Very sorry to hear that story. 

[FD1000]

Another reason why not to own real estate.
www.news4jax.com/news/local/2023/04/05/jacksonville-squatters-finally-evicted-from-home-after-40-days-leave-behind-15k-in-damage-owners-say/

[Chahta]

The property sounds like jewel. Too bad it has to be sold.

[Fearchar]

Update to the family camp saga.

We now have 2 assessments.
One for $285,000 and another for $350,000.
And then there is one of my sisters that could be a RE agent and thinks she could sell it for even more.
Problem is that it is in a rather quiet part of the park, so I have my doubts.

Anyhow, the lower assessor missed the amount of Lake Frontage as it's a double lot.
I also understand the lower assessor was a "Bank assessment" vs a "Market assessment".
Agreement has been reached to average the two assessments.

My concern at this point is the amount of capital gains that would come.
The property has been in the family for 60 years.
20 years ago, my Father legally ceded it to us for $1.
Lawyer handling the sale will be filing a 1099.

We and especially myself being in a higher tax bracket could be looking at a sizeable tax bite.
So, I'm going to pitch the thought of selling the property back to my Mom for $1.
Her health is not that great and I'd much prefer to inherit the property with a stepped up tax basis.

All of us are already in line for an inheritance (one quarter each) that more than covers the property.
I have power of attorney for my Mom and will be the executor of her estate someday.
So, I'd allow the interested Sister to inherit the camp property and adjust her share of the rest of the estate accordingly.
In the mean time, we would allow the interested Sister to manage the property.

Family Meeting later today.
Hopefully, it won't be too difficult of a concept to sell.
Problem is 1 or 2 of my sisters maybe anxious to receive the income sooner rather than later.

[retiredat48]

Fearchar,Please keep us posted.

BTW Are you sure you can sell real estate (like for $1) at below market values, to escape taxes? Not sure a "gift" would suffice as well. Gift to mom, and then use step-up basis. May require all parties to file the couple-page IRS gift return...but no tax would be due, as estate tax exemption applies in ones lifetime as well as when dead.

R48

[fishingrod]

Jun 11, 2023 18:13:48 GMT retiredat48 said:

Fearchar ,Please keep us posted.

BTW Are you sure you can sell real estate (like for $1) at below market values, to escape taxes? Not sure a "gift" would suffice as well. Gift to mom, and then use step-up basis. May require all parties to file the couple-page IRS gift return...but no tax would be due, as estate tax exemption applies in ones lifetime as well as when dead.

R48

+1

I believe you can sell the property for $1, but would need to file a gift tax exclusion for the difference between fair market value.

[Fearchar]

Thank-you for the feedback.

One of my daughters is a CPA.
Not that she would necessarily know offhand, but she could check at her Office.

I'm thinking partners like it when new CPA's ask these types of questions during the off season.