Inheriting A House With A Sibling – The Basics
Table of Contents
- When Siblings Inherit A House
- Who Owns What Portion Of The House?
- What Options Do The Siblings Have?
- Sharing Ownership Of The House
- Tenancy In Common
- Joint Tenancy
- Options With Shared Ownership
- Structuring A Buyout
- Selling The Home
- A Partition Suit
- Keys To Success
- Have Questions About Qualifying for a Mortgage?
Every year hundreds of thousands of houses are inherited by siblings. If this has happened to you, you need to know the facts and your options.
When Siblings Inherit A House
The first and biggest question when siblings inherit a house is:
Who Owns What Portion Of The House?
The law says that the house is owned equally by all inheritors unless the will states otherwise. So, if there were two of you siblings, you each have 50% of the house, three siblings would each own 33.3%, etc.
Among other things, the fact that each sibling legally owns a percentage of the house means that no one sibling can make decisions about what is to be done with the house without the agreement of the others. So you’re going to have to get along.
What Options Do The Siblings Have?
When siblings inherit a house, they basically have four options:
- Sharing ownership of the house, which may include renting the house
- Structuring a buyout
- Selling and dividing the proceeds
- Or if they cannot come to an agreement, it is possible to shift matters to the court and let them decide what to do through a partition suit.
Let’s talk about each of these options.
Sharing Ownership Of The House
Some families elect to continue to own the house as siblings. Legally this is done through one of two options:
Tenancy In Common
In tenancy in common agreements, each owner owns a certain percentage of the property.
- Ownership can be divided equally or unequally, legally it doesn’t matter
- All owners have a claim on the property
- All owners are responsible for the obligations of the property (taxes, insurance, mortgage payments, etc.) If one co-owner does not pay, the others are responsible for all required payments
- Owners can borrow against their portion of the property
- Any owner can sell or transfer their share of the property to anyone else without having to get permission from the other owners
- If a co-owner dies, their portion passes to their heirs who now own that percentage of the property. Their portion of the property goes through probate in this process
- Tenancy in common can only be dissolved through a buyout agreement or a partition suit
- One co-owner can force the dissolution of tenancy in common
Like tenancy in common, each owner owns a certain percentage of the property but:
- All co-owners must possess equal shares (except in Colorado, Connecticut, Ohio, or Vermont)
- When a co-owner dies, the property cannot be passed to their heirs. Instead, their percentage of ownership is divided equally between the remaining co-owners. No probate is required to pass this ownership
- When the last co-owner dies, the property will go through probate and will be passed to that owner’s heirs
- All owners must agree to the sale of any co-owner’s shares
- When one co-owner transfers ownership to another, the joint tenancy is dissolved, with the property reverting to a tenancy in common
Options With Shared Ownership
When a property is mutually owned, the owners can choose to use it however they wish as long as they are in mutual agreement:
- The house can be rented, with the proceeds split between the co-owners
- The house can be lived in by one of the co-owners, with payments (or the lack of them) agreed upon by the co-owners
- Time spent living in the house can be divided between the co-owners (this oftentimes happens when the house will be used as a vacation home)
- The house can sit vacant
Structuring A Buyout
Sometimes one sibling wants total control over the house, to live in it, rent it, pass it on to their heirs, etc. This can also happen when one or more of the siblings want to keep the house in the family, but some of the siblings want to sell it and take the money. When this is the case, a buyout is usually the best option.
Usually, this process starts with an appraisal to set a fair price for the home. Then the person who wishes to have total control over the home will pay the other owners of the home to secure the deed and sole ownership.
Unless that sibling is financially well-off, this usually involves getting a loan for some or all of the buyout amount. Since most mortgage lenders won’t process this type of loan, this usually involves getting a hard-money loan.
A hard-money loan is a loan from a non-traditional lender, such as an individual or a private company, who will loan the money, usually on a short-term basis. The lender will require the house as collateral on that loan, which means that if you default on the loan, you will lose the house, just like in a regular mortgage.
Selling The Home
Frequently, none of the inheriting siblings have the interest or financial resources to buy the home. In this case, the best option is to sell the house and divide the proceeds.
This process usually starts with a professional appraisal so all the siblings know the fair price for the home.
It usually works best if the siblings agree on who should make the final decisions regarding the sale of the home, which can be one of the siblings or someone outside the family, so they can deal quickly in the real estate market. That person will be responsible for putting the house on the market and contracting the sale. Sometimes the siblings will agree to pay that person a certain amount to compensate them for their efforts.
When the sale has been completed, the remaining funds will be divided between the siblings based on their percentage ownership of the house.
A Partition Suit
Unfortunately, some siblings can’t come to an agreement. In this case, the decisions are passed to the court through a partition suit. This will involve lawyers (who will charge fees), and court fees, so it will be more expensive than coming to an agreement, (sometimes the fees will eat up all the revenues from the house sale), and there is always the risk that you won’t like the court’s decisions, so you should only do a partition suit as a last resort.
Keys To Success
No matter how much the siblings want to work together, there is always a risk of disagreements during this process, especially when spouses, grandchildren, and others are involved. Therefore, we recommend that you:
- Keep the group involved in making decisions as small as possible, preferably just the siblings
- Document everything in writing, signed by all the siblings
- Consult experts, like lawyers, tax accountants, and financial advisors
- Don’t rush things. Working on a deadline increases the potential for conflict
- Be willing to take time to cool off if emotions get hot. It’s more important to build and maintain sibling relations than to win
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