Real Estate: California/Buying out a real estate tenant in common
My husband and I bought a house in San Francisco in 2000 with a friend - "J". "J" now wants to sell his share of the property and no longer lives there. I have rented his physical space and he no longer pays toward the mortgage because the rent covers it. He is a co-borrower on the primary mortgage but not the home equity line. Due to job loss, my husband and I were forced to declare bankruptcy (Chapter 7), which was final in September 2010. We have never missed a mortgage payment or equity line payment and still have the home. What are our options in buying out our third party? What valuation do we use on the home if we are wanting to do this? What is the likelihood we can refinance with the original lender? Thanks!!
DO NOT ATTEMPT A SELL, PAY OFF, OR CHANGE VESTING OF A PROPERLY WITHOUT CONSULTING AN ATTORNEY!
ADDITIONALLY, CONSULT A CERTIFICATED ACCOUNTANT TO DETERMINE THE TAX CONSEQUENCE OF CHANGING THE VESTING ON REAL ESTATE!
I ALSO RECOMMEND THAT JJ (CO-OWNER) CONSULTS HIS OWN DIFFERENT ATTORNEY AND ACCOUNTANT!
I am NOT an attorney and I HIGHLY recommend you a consult a Real Estate Attorney for confirmation and clarification of the information I have provided and BEFORE you start the process of selling, changing vesting, paying off loans, or refinancing.
The information I have provided is ONLY my opinion and may NOT be 100% accurate. Also, the information provided is ONLY general guidelines to get you started, as the process can be very complicated and an attorney will be able to assure that no misstates are made.
Unless you sell the property and the only way to determine the value is by obtaining an appraisal, which you can order. You will need to tell the appraiser that you what the appraisal based on the LOWEST market value of the home (read below* **). You will need to pay off JJ and record the new names and vesting at the County recorder. I would suggest use an escrow company, for additional help with paying off JJ and recording, and you will also need to contact your current lender to determine their requirements for paying off JJ.
The only way to know if you can refinance the home is to talk with a qualified lender. Keep in mind that larger banks, such as Wells Fargo, may not want to refinance the home, but a smaller intuition may be willing. The rates today are similar, so it will be difficult to shop for a loan to get a lower rate. If you refi, you will need to have JJ get involved and while you are in escrow, you can pay off JJ and change the names and vesting when the home records at the County recorder.
If a lender agrees to refinancing, when the lender orders the appraisal, you can ask the appraiser, and I suggest pay the appraisal an additional fee for a separate “*Marketing Appraisal,” – You will want to ask him to give you the LOWEST value possible- “what the least amount the home would sell for.” This is very important because a refinance appraisal can be different than the marketing appraisal because a refinancing appraisal can be higher than you want because the appraiser needs to you get the refinancing. DO NOT let JJ base the value of the home based on the refinancing appraisal (banks appraisal), as it would NOT be accurate. I know this sounds complicated, but believe me this is correct information, as I was an appraiser for several years (1994-1999) before becoming a real estate Broker.
**To be fair, you may want to suggest to JJ that he also pay for his own “marketing appraisal” and he will want to ask the appraiser to give the HIGHEST amount that that home will sell for. If you are friends, you can ask the appraiser to give you an appraisal that gives the LOWEST and HIGHEST amount the home will sell for and split the difference between the HIGHEST and LOWEST value of the home paying JJ the percentage of the home that he owns.
Lastly, because JJ has not been paying off any portion of the loan, the amount that he has not been paying (time period) may be argued that value belongs to you because you have had to deal with renting his portion of the property. You will need to determine what your value is worth, but I might suggest the amount a property manager would change 10-20%. An attorney can also help you with determining the value of the portion you have been renting.
Thank you for rating my question. David Norwood-Central Coast Real Estate http://dnorwood.com