Is a Due on sale call possible on an inherited house?

Question

So I went to see a lawyer today. I went to see him about forcing the cell of one of my deceased father's estate properties. But here's the back story first.

Exactly three years ago my father purchased a house in Delaware. And the plan was for my family and I to move in this Delaware property with my father to help with his medical needs. The home was big enough to house my father and me as well as my three children. Three month after closing on the Delaware property my father passed away due to heart failure. My family and I (me & 3 children) currently reside in that property. I have been keeping the mortgage payment current & even made some upgrades. (New windows all around, added a wood stove)

The problem is with the other house in Pennsylvania. My father had the type of insurance that when he died the Pennsylvania was paid off. (I forget what it's called at the moment) But the problem is that my brother doesn't want to sale the Pennsylvania property. He doesn't want to live in it either. (Ghost) He has had 2 cockamamie plans that has deterred us from being on one accord to sell the house. First, he wanted to turn the house into a daycare center. Now he has hooked up with some type of sovereignty movement teacher who is feeding him a bunch of crap about turning the house into a transitional home. In the mean while the taxes haven't been paid on that house since the last time I paid it. Which was 2 years ago. The taxes must be addressed by the end of this month. Or the city steps in. The house has been broken into and vandalized. And all the copper pipes taken out. When my brother and I was on the same Accord when when we wanted to sell the house. We were supposed to go half on the repairs and getting the house back up to code for the purpose of selling it. What happened was that I begin to make repairs in the house with my own money I replaced the copper piping that was left with pex pipe. I was the one keeping up on the maintenance and cutting the grass. Bottom line my brother didn't spend a dime on repairs and hasn't spent any time maintenancing the home and now has reneged on wanting to sell the property.

I went to see a lawyer today about forcing the sell of that PA house. He tells me that forcing the sell of that house may in turn force the sell of the DE home also since it's apart of the estate. He goes on to say that the best thing to do would be to sign away all interest in the PA house & see if my brother would be interested in the same for the DE house Therefore leaving me solely the owner of the DE house and him the owner of the PA house. He says that because the PA house appraised for 67k and the DE house is worth 160k. He said to look at it as if we were going to sell both properties. With it being A 100k loan on the DE property. I'd keep the 60k and the same for my brother and the 67k for the PA property. Also the lawyer said that I'd need to refinance the DE home in order to put it in my name or the bank might call in the loan.

Please tell me am I looking at this the wrong way. I see my brother Inheriting a free & clear house while I inherit a 100k loan. Tell me that my research on what can and can not trigger a due on sale clause is wrong. (I read that the bank could not do it to the hiers or any family member) Please tell me that I can buy my brother out of the De. at the date of death equity in the house.

Just so we are clear on what I wanted to do. My intentions was to fix up Dad's house and sell it and split the profits with my brother. My brother wants no part of the 100k loan that was taken out on the Delaware home. But I have 3years of equity in the home. I have paid roughly about 25k in mortgage & 15k on new windows in the DE home.

Please Advise.

Thanks in advance

Joe Splitrock · Answer

I thought the basis for capital gains on inherited property is the value at the time of death? He died three years ago, then that would be the basis. On one property, he died three months after it was purchased, so likely the purchase price is the basis in that case. It is unlikely the value changed in three months.

Chris K. · Answer

@Morris Hicks

I don't practice in DE, so please don’t take this as legal advice. But here are my thoughts:

1. Please tell me am I looking at this the wrong way. I see my brother inheriting a free & clear house while I inherit a 100k loan.

You are looking at this the wrong way. Assuming the attorney is using the correct value, you then are inheriting a 160K property that is subject to a $100k mortgage. Your brother is inheriting a property that is worth $67k minus taxes due and owing. While I don’t know all the facts, that’s probably an even trade.

2. Tell me that my research on what can and cannot trigger a due on sale clause is wrong.

You are probably correct that you can rely on the Garn-St. Germain Act to avoid triggering the due-on-sale clause. I cannot tell from your post as to where you and your brother are in terms of estate administration. But if the estate transfers the DE home to you directly, then I can’t see how the Bank can trigger the due-on-sale clause. But it probably does make sense for you (or your attorney) to talk to the mortgagee to make sure that there is a smooth “administrative” transition.

3. Please tell me that I can buy my brother out of the DE Home.

You probably can, but you will probably need to get the court’s permission. In PA, this process is often expensive for all sides due to the legal fees. The judges also tend to run out of patience---quickly---when dealing with “minor” family disputes. Now if your brother tries to compel the sale of the DE Home, you can make an offer to buy out his 50 percent interest. I don’t necessarily see a good basis for your brother and his counsel to object unless the appraised value is far too low.

One quick note about the various expenses you paid. I don’t know what DE law exactly says on this issue, but in PA both you and your brother own---more or less---all property as tenants-in-common. As a practical matter, this would mean that your brother must pay for 50% of the expenses but you must also pay him 50% of the profits.

So if you were litigating this in PA, here is basically what would happen. You can submit any legitimate expenses you paid for the PA Home to protect its value. You can also do so for the mortgage payments. It get’s trickier with the new windows since the fact that you spent $15k on the windows does not mean that the property value increased by $15k. On the other hand, your brother can demand that you pay 50 percent of whatever he incurred as an expense for the estate. Your brother can also probably demand that you pay 50 percent of the fair market rent for your DE Home for the time you lived there. After doing all that accounting, you will get a sense of what each of you paid for estate expenses, and how that amount should affect the distributions from the estate.

Steve Babiak · Answer

The heirs will have a basis set at the date of death appraised value.

Is there a will? Has it been probated? Who is supposed to act as the executor / personal representative? Are there any debts of the decedent that are supposed to be paid off from the assets of the estate? Was the decedent receiving Medicaid (not Medicare) benefits before he died?

Those are just a few of the questions that have to be addressed before there is any equity to be split among heirs.

Account Closed · Answer

I have heard this story before. Has he already posted his side of the story on biggerpockets?

Jeff B. · Answer

YOU ARE CORRECT - - date of death should be the date of the appraisal; it's stinks that this occurs at such a stressful time.

Jeff B. · Answer

IN ALL CASES, get a present day appraisal on both properties as this establishes the new basis for each. Any sales after this date will be cap-gains against the new appraised values.

Joe Splitrock · Answer

It sounds like both properties are currently in your fathers name legally. That is probably why your attorney is recommending you settle the estate. That means dealing with all assets including your home. You will need to come to an agreement with your brother or have your attorney force it in court. If you don't take action, the unpaid taxes will result in the PA home being sold at auction. This is going to get worse for you and your brother if you don't settle it. Please work with your attorney immediately before you lose it all.

Arthur L Dusenbury · Answer

It is always possible. Lenders only concern is that the payment is being made. Miss a payment that becomes a whole different discussion. If you have ample cash reserves you could be safe.

Rick H. · Answer

Ok, you are looking at this the wrong way.

That's what you asked for, right?

David D Painter · Answer

Sounds like an even trade. You other get about the same equity. You money into into a house that you have been living in and will reap the benefits of. Yes, you are looking at it in the wrong way.

Is a Due on sale call possible on an inherited house?

Is a Due on sale call possible on an inherited house?

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