Does paying mortgage give you equitable interest?

[Curtis H.]

Not sure what forum this goes in but I have an interesting question. This doesn't involve me, but a childhood friend. I'm not sure what to tell him. Here is the scenario as simply as I can put it.

* Used family member's credit to get into a house roughly 10 years ago. House is in the family member's name. Mortgage is in the family member's name. I think you know where this is going...

* Friend put up down payment money, pays half the property tax, and ALL of the mortgage payment every month on time for 10 years. 

* Family member uses the tax savings by writing off the interest and using the money to pay the other half of the yearly taxes

* There was no written agreement in place for the 10 years my friend was living in the house and paying the mortgage directly to the lender under his name. There was a verbal agreement there were witnesses for that the family member wanted NOTHING in return for using their credit. It was a favor. Asked about it a few years later, family member re-iterated everything was all good and since they make payments on time every month, it actually helps them, not hurts them. 

* Fast forward to today, there is $500K equity in the house (Bay Area) and the family member has gone Tony Montana on my friend. Made them sign a tenant and landlord agreement 6 months ago and basically said they want $300K in equity and will give the rest to my friend. End of story. No negotiation. They have put less than $40K into this house total, where my friend has put in almost half a million. Yet the family member wants over half the equity. This family member was the closest thing to Mother Theresa I had ever seen previous to this incident. Everyone is floored, but half a million can make anyone go nuts apparently. 

Is my friend screwed if this goes to court? Not much he can do now as everything is in the family member's name. 

Thanks!

[Joe Splitrock]

@Curtis H. here is the problem for the "owner". She is trying to now claim that he was renting the house for 10 years. That means the "owner" is renting a rental property. I am guessing she has not been claiming the property on her taxes for the last ten years. That means she has fraudulently filed her returns for 10 years. The IRS frowns on tax evasion, in fact people go to prison for it. This is the LEVERAGE that your friend has. 

I would tell her that we had a verbal agreement and I upheld my side of the agreement, making payments on time and improving her credit. I would tell her that asking for $300K in equity is unreasonable considering I paid all interest and principal payments. I paid all taxes and paid all repairs. The agreement was that I would own the property. I would tell her I am prepared to go to court, presenting proof of myself making all those payments. I would tell her that if I lose in court, I will report her to the IRS for tax evasion. She will owe ten years worth of back taxes plus, fines and potentially even criminal penalties. I may consider even trying to negotiate the equity amount. Offer her $50,000 worth of equity in an agreement to compensate her for using her credit, with the agreement being the title transfers to my name after payment. 

Keep in mind if she does sell the property, she will owe capital gains taxes along with back taxes for rental income. She will owe California taxes. She will owe fines and could even be criminally liable. He can make this a big mess for her. 

Also, she can't sell the house without evicting your friend, which we know could take 6 months or more in California. Mean while, no mortgage payments are being made and the house could move into foreclosure. The courts will be very sympathetic to his story during eviction hearings. 

Maybe your friend calls the local news and they do a story on "hard working man deceived out of home that is rightfully his". Her reputation is destroyed in the public media. Bottom line is, if she wants to play dirty, it can get really dirty. 

One point of clarification, going to church doesn't make you a good person. How you treat others makes you a good person. If this woman is really a person of faith, maybe her Pasteur should be contacted. Request a sit down mediation with a person of God to help her see the light.

All I am saying is use her faith, public shaming, the IRS, legal threats, stopping mortgage payments, whatever to get her into a negotiation. Most people will just take easy cash once faced with a nightmare.