Can I get the house?

[RedPill]

A lot of things swirling in my head. Here's one for the hive mind... .

UstbxBPDw served me with divorce papers about 2 months ago. We are both still in the house. It's uncomfortable and not great for D15 but I do not have anywhere else to stay nor the means to pay for it. I am the primary wage earner and am currently paying mortgage, utilities, bills, etc. because she was advised by her L not to. She's probably crying poverty although she has a large inheritance and strong earning potential documented by previous work that she walked away from. She does work but doesn't currently make very much. I can do this for now but of course I'm not saving anything. Our family finances were always very tight.

We bought our small house in the housing bubble and are only now just beginning to see positive equity: roughly $50k. EXCEPT a $100k "gift" down payment from her step-father was turned into a note after the fact. There was some fancy footwork involving this transaction but I have documentation calling the down payment a gift first, although we signed off on it being a loan later. Tack this on and we're still $50k underwater. I assume that step-father will want his money back if we sell. It's unknown yet how this would shake out but it's hanging over my head. I'm not sure if pwBPD is aware.

I put a lot into this house. I fought for a modification and against all odds got it done. And D15 has lived here for most of her life. Between pwBPD and me, I have the income to pay the mortgage, she has the inheritance and wealthy step-father who could step in to help.

So could I get the house? How? Would I even want to? I'm conflicted. Perhaps it would be better/healthier to cut ties and move forward. Then again, the market is going up and very likely to appreciate more in coming years.

What do you think? Suggestions, thoughts, questions appreciated.
-
RP

[flourdust]

This is going to depend on your state's divorce laws. You can search online for information, but speaking to an attorney is a better way to ensure you get good guidance.

In my state, property is considered either marital (to be divided equally in divorce) or non-marital (not part of a settlement equation; returns to the original owner). Non-marital property includes inheritances and gifts from outside parties to one partner only. Your wife's stepfather's $100K would be considered non-marital property, belonging to your wife only.

BUT. My state also has a formula for calculating non-marital percentages of home equity. Let's say that you put down $200K down payment, and the house now has equity of $50K. If $100K of the down payment was the gift to your wife, and $100K was from your marital bank account, then the formula would say that 50% of the equity is your wife's, and then the remaining 50% is split evenly. So, your $50K equity would be split 75% to your wife, 25% to you. The amount of cash value to each party is going to vary based on the equity, but the percentage will be set based on the formula.

SECOND BUT. Generally, division of property in divorce isn't asset by asset -- it's about making sure that the overall value to each party is roughly equal, once you've subtracted out non-marital property. So, if you want to keep the house, you need to negotiate so that she gets her value of the equity from other assets you are splitting -- such as cash or retirement funds. Google "property equalizer in divorce" to get a sense of how this works.

[GaGrl]

When the gift was turned into a loan, was the loan documentation in both names or just in your wife's?  That after-the-fact loan situation is a complicating factor.

[RedPill]

Both the gift letter on 5/3/06 and deed of trust on 10/6/06 were in both of our names. We closed on the house on 5/25/06. My lawyer is aware of this but we're waiting for the financials to come in to discuss. Agreed, it's complicated.

Looking at our overall financial picture, I have a good income but no independent savings. She has a trust inheritance fund (that she's rapidly blowing through) but little current earnings. Pretty much everything acquired during the marriage is community property (including debt) except inheritances. If the down payment holds as a loan, my fear is that we will have to sell the house but step-father will basically waive her 50% repayment while holding me to mine, or just gifting her the funds to repay the loan, or using some other way to clear her from the debt. Sucks. I have had a good relationship with father-in-law and even protected him when she was splitting him black in the past, but blood is thicker than water.

The deeper question is whether I want to fight for the house at all or move on and start fresh. Considerations to keep it would include allowing the house to continue to appreciate and to provide some consistency for D15. Any thoughts about this?
-
RP

[flourdust]

I suspect that the issue of gift vs. loan and who owns it will come down to negotiations and legal wrangling. Both of your names may be on the gift; but she'll argue intent, and so on. You may both have some leverage here to negotiate the final terms.

[RedPill]

I need to unload here.

UstbxBPDw is still staying in the house. She is not contributing to the mortgage, utilities, or household bills. We do not talk much. She spent about a month holed up in her room with the door closed whenever I was home but recently has begun to move about the house more freely. I try to avoid her for D15's sake while we are both home. My heart races with anxiety when I am around her so I stay away and don't talk.

This morning as I was walking out the door to head to work she approached me saying that we needed to discuss what was going to happen to the house. She wanted to know if we could talk about it or if we needed to work through a mediator or our lawyers. In my mind alarm bells were ringing as I thought back to an earlier conversation when she said we should split the bills and have joint custody of D15; now she is not paying for anything and her petition is asking for full custody with visitation. I said something about sending me an email with her thoughts on the house as a starting point. And then the old blame shifting began: this needs to be a communication, she felt like I didn't want to approach this with her, she felt, felt, felt, etc. When she ran down she stopped and stared at me, seeming to wait for a reaction or response. I repeated again that we will probably need to go through the lawyer or mediator and left for work.

Analysis: on the pro side, I didn't engage, which was good. I didn't JADE or make any concessions. I held my boundary against engaging when I am being blamed. On the con side, the elephant is still in the room. Am I being obstructionist? I feel like Obligation is raising it's head in me to attempt to work something out. I wish I could take everything less personally and just complete the business of the divorce so I can move on. But I feel so wrapped up in it.

I want to try to keep the house. It may be a pipe dream, but I'd like to give D15 some constancy during these chaotic times. And I have put so much blood, sweat, and tears into the house. Frankly, she never seemed to care about it. And it will probably appreciate in the future. There is no equity so I will not have to pay her off. There is a deed of trust owed to her step-father which I would have to repay or take on?

Anyway, that was my morning. Trying to move on... .
-
RP

[flourdust]

She wanted to know if we could talk about it or if we needed to work through a mediator or our lawyers.

I said something about sending me an email with her thoughts on the house as a starting point. And then the old blame shifting began: this needs to be a communication, she felt like I didn't want to approach this with her, she felt, felt, felt, etc. When she ran down she stopped and stared at me, seeming to wait for a reaction or response. I repeated again that we will probably need to go through the lawyer or mediator and left for work.

She asked a question. You answered the question. It turned out that she didn't really want an answer; she wanted to spray some of her emotions at you. I think you did fine.

[ForeverDad]

When asked about loans between family members, radio host Dave Ramsey always replies, "Absolutely No!  Loans to family often go unrepaid.  There are just too many ways it can create bad feelings and whatnot."

If you've signed later a document that redefined the gift as a loan, I don't know if there are any alternatives to calling it a loan.  How much has been paid off on that note?  If no payments have been made in ten years then maybe that's basis to call it a gift?  You need legal advice for that aspect.

[RedPill]

PwBPD wanted a house and down payment gift/loan from step-dad was only way for us to qualify. Bad judgement that I went along with because I never thought I'd be in this situation. More fool I.

How much has been paid off on that note?  If no payments have been made in ten years then maybe that's basis to call it a gift?

Interesting. We have not repaid one thin dime to step-dad nor has he ever requested. It's worth looking into with my L. Thanks for the idea!
-
RP

[RedPill]

Developments:

I received a message from ustbxBPDw's L (through my L) that they are motivating to make some moves on the house. They want
a) to sell the house and split the equity,
b) an offer to buy her out, or
c) to go to court and ask for funds to move out, support, and fees.

Currently, we are cohabiting in the house. I have paid full mortgage, utilities, and bills for the past 2 months. So far it's been tense but civil enough as we try to avoid each other as much as possible, although I suspect her patience is running dry.

The house has an estimated $50k equity on paper but also has a $100k note held against it by her step-father who gifted/loaned us the down payment. The property is still approximately $50k underwater including this note. Is pwBPD and her L unaware of this note? If I agree to take over the mortgage and refinance, I will be taking on additional debt without an asset; in other words she will have to buy ME out (or owe me the difference via another asset).

Does anyone have experience in this? This is the house D15 grew up in and I'd like to provide consistency for her. I've poured a lot of sweat and energy into the house over the years. With my current earnings I could pay the mortgage alone with a strict budget. Parents are available to assist if necessary. I can make repairs and upgrade the house for a future sale. Refinancing would be the question but I think I could qualify. Thoughts? Practical vs. emotional ties?

Thinking outside the box: if her step-father forgave the note I would have to pay her roughly $25k in equity for the house. He's a practical guy, knows her temperament and may see the benefit in forgiving the note to get her the equity rather than making her liable for the debt. Who knows. Without the note I'd owe her the equity but mortgage would be smaller.

Some online research about splitting underwater mortgages in divorce led to:

If the spouse retaining the home is able to refinance the mortgage into his name, he's taking on additional debt with no corresponding asset to balance it. The spouse who isn't retaining the home shares liability for the deficit. You can compensate for this by giving additional assets to the spouse who's assuming responsibility for the underwater mortgage, equal in value to half the deficit. Alternatively, the spouse not keeping the home can take on other debt equal to half the deficit. If you sell the home, both of you would be responsible for the shortfall owed to the lender.

Feedback appreciated. Conversations with L ongoing.
--
RP

[flourdust]

Generally, I think the approach to splitting assets is to use a property equalizer. Assuming approximately equal division of assets, you put all assets and debts/liabilities into a spreadsheet, then divvy them up into his and her columns. As long as the TOTAL in each column is equivalent, then you have a reasonable division.

For example, if you have 10K in credit card debt, you could choose to keep all 10K of debt on your side of the balance sheet and transfer 5K (her half) out of her assets (savings, retirement fund, home equity) into yours.

So, the equity from the house does not need to be divided equally, as long as equivalent value is -- meaning in practical terms you would have to shift other assets such as a chunk of your retirement onto her side.

The sticky point here is the gift/loan. It really really matters which one it is, and you need an expert legal determination of that.

Assuming the house has $50K in equity, and her dad's $100 was a gift to her. Was there any other contribution to the down payment? This is also where your state's law becomes important, because it should address how to divide up property if contributions to the equity came from marital and non-marital sources.

You aren't going to get an answer here -- you will need to consult with an attorney familiar with these matters. I will say that the math does not look very favorable for you keeping the house, unless you are able to offer up a lot of money from other assets (retirement funds, etc.) and your wife is agreeable to the specific swap.

[flourdust]

One more thought -- you really do need to talk to a real estate lawyer and bring in the relevant documents.

I've bought a few homes and family gifts have been involved -- the underwriters have been very clear about wanting gift letters that show the money received is a gift, not a loan. (The down payment is not supposed to be leveraged.) I don't think it's legal to convert it to a loan later.

[ForeverDad]

EXCEPT a $100k "gift" down payment from her step-father was turned into a note after the fact. There was some fancy footwork involving this transaction but I have documentation calling the down payment a gift first, although we signed off on it being a loan later.

One more thought -- you really do need to talk to a real estate lawyer and bring in the relevant documents... .

(The down payment is not supposed to be leveraged.) I don't think it's legal to convert it to a loan later.

And this is the value of peer support.  While many of us posting replies may get the sense that something smells and many contribute their thoughts and experiences, all it takes is one person to find the words to phrase a possible core issue, an approach, something we could then put our finger on and say, Aha!  I think flourdust just did that.

[Grey Kitty]

The biggest minus to trying to keep the house is that you have to fight all the way to the end of the divorce to get it away from her and live in it without her.

Living in a cold-war house like this can't be good for you, your wife, or D15. If you move out, at least THAT will improve, and you could (theoretically) do it tomorrow instead of needing a year or two of legal wrangling first.

From your wife's lawyer's latest, she is giving you the three fundamental choices here:
1. She gets the house.
2. You get the house.
3. Sell the house.

Except that there is an implied expectation that she will be supported otherwise financially benefit in either choice #1 or #2 as written by the lawyer.

What do you really want? And since you seem to want the house, consider how badly you want the house yourself and how much you would be willing to pay for it... .or how long you are willing to fight for it.

With my current earnings I could pay the mortgage alone with a strict budget.

It absolutely sounds like your wife wants spousal support from you and/or child support from you. She sounds pretty entitled. She will probably fight for it in court, and may end up with something.

Are you taking this into account in your budget?

[RedPill]

(The down payment is not supposed to be leveraged.) I don't think it's legal to convert it to a loan later.

Thank you for this. I will check it out with my L and report back.

From your wife's lawyer's latest, she is giving you the three fundamental choices here: 1. She gets the house. 2. You get the house. 3. Sell the house.

I don't see her trying to get the house in her L's message. I see her wanting to get out and a) motivating us to sell it, b) for me to buy her out, or failing that c) to get support from me so she can move out while things are in limbo.

That said, you raise good points regarding the difficulty of the status quo for everyone involved. However, I do not have the resources to move out and support another residence, nor do I have anywhere local to go.

I am struggling to decide what I really want. I don't know how much spousal support would drain my budget, nor how much the house would even be valued at. I'm waiting for direction from my L.
-
RP

[RedPill]

Update: we agreed to have an appraiser visit the house and give it a value. The appraiser was agreed upon by both our lawyers so only one was necessary. UstbxBPDw believes and wants value to be high for a potential sale or high buyout price from me. I'm not so sure. Comps are not looking good. I just want to see an honest appraisal of the property. If it's low, I may have a chance to take over the property. If it's high we'll put it up for sale and see what kind of offers we get. We should get the appraisal back soon.

I finally received ustbxBPDw's schedule of assets and debts. Surprise - not only does she not disclose her inheritance bank account asset of over $75k (unless she's blown it all), she listed the $100k down payment gift/loan from her step-dad as a separate property asset. Huh? Both in the initial gift letter and subsequent loan documents the two of us are listed as recipients. Her lawyer's documents are riddled with errors (my name is incorrect as well as our address) so either he's lazy or incompetent? That combined with her misrepresentation/ignorance of the facts is resulting in quite a mess to untangle. I guess she's thinking that the money is hers alone since it came from her step-dad and that after a successful sale she should get the full down payment back first before any leftover profit is split as separate property. Unfortunately, I don't think it works quite that way. Does it?
--
RP

[flourdust]

I guess she's thinking that the money is hers alone since it came from her step-dad and that after a successful sale she should get the full down payment back first before any leftover profit is split as separate property. Unfortunately, I don't think it works quite that way. Does it?

Don't think so. Her best case scenario is that her dad's contribution is viewed as a gift to her alone, in which case she is likely entitled to a equivalent proportion of the equity of the home. (If the 100K represents 50% of the down payment, and the other 50% was from marital assets, that would mean she is entitled to 75% of the equity.) This assumes that's how your state law divides up marital assets -- you really need expert guidance from a lawyer who knows your state's laws.

But there's also the issue I raised above of the legality around the terms of the 100K contribution. Is it a gift to one spouse or both spouses, and was it properly declared in your father-in-law's tax forms? If it was a loan, was that disclosed to the underwriters and does it violate the terms of the mortgage agreement?

[ForeverDad]

Good point there are GIFT reporting rules requiring reporting on IRS tax filings (presuming USA here).  My parents gifted my spouse and I some land to build on but it didn't need to be reported since my mother could gift us a certain amount of value each, and so could my father.  I multiplied the IRS threshold by 4, it was above the value of the undeveloped land and so we didn't report.  The current IRS threshold is $14,000.

In your case, you need a legal expert to voice whether it was even legal or allowable for her family to recharacterize the 'gift' later as a 'loan'.  (That's above and beyond what any contracts or mortgages require.)  Speaking of a large 'loan', was it interest free?  If so then this article says the IRS views that as a No-No.

https://blog.taxact.com/family-loans-does-the-irs-care-if-i-lend-my-kids-money/
https://irs.com/articles/7-things-you-should-know-about-gift-tax

[RedPill]

Update:
The appraisal valued the house at $475k.
Initial purchase price was $515k.
Primary mortgage balance is $399k.
Down payment gift/loan from step-father-in-law is $100k plus interest.
We had an interest-only mortgage for the first 7 years so little progress on equity.
I am consulting with a separate real estate lawyer tomorrow for some input on the legality of the down payment mess.

StbxuBPDw listed the $100k down payment as a "separate property" asset on her (vague and incomplete) schedule of assets and debts. Maybe I can argue that she'll have to take the hit on the loss since she claims it's all her separate property. I think she was hoping it was going to appraise higher and get equity out of it although all signs were to contrary.

Hopefully more info tomorrow. Not sleeping well recently as the action heats up.
--
RP

[flourdust]

Glad you will be getting some clarity, RedPill!

[RedPill]

I had the consultation with another L to discuss the down payment. My takeaways were:

1. There seems to be no automatic illegality in converting the downpayment "gift" into a loan or "deed of note" after the mortgage was established. It is shady and the source of the funds may be in question but didn't appear to be overtly illegal, we all signed off on the paperwork, and it has been filed.

2. She listed the down payment as "separate property" on purpose in an attempt to recoup the down payment solely for herself as if it was a gift to her only to help her buy the house. However, I have solid documentation that both as a gift and later when turned into a loan the recipients are specifically the two of us by name. So that argument won't hold water. OR if she continues to claim that it was a gift to her alone I could counter by noting that it is now a loan and also hers alone to repay?

3. If it holds up as a loan against the two of us, her step-father could call it in, foreclose, and force a sale anytime for full repayment plus interest. However, since we are still underwater (after 11 years, thanks Wall Street) he would have to sue both of us for our portions of the outstanding amount. The L seemed to think he would not foreclose on his own step-daughter, although he could also just gift her the portion she needs to repay.

4. Although we signed off on the change from a "gift" to a "loan" the transaction was not altogether free on my end. The L said I could claim that there was coercion to do it based on the need to keep the peace with her and her FIL. There was a legal argument for that which I've forgotten.

5. The L's best recommendation for me was to try to work out a deal where we agreed to sell the property, FIL agreed to extinguish the loan, she got the equity in the house (negotiable based on the final sales price?), and in exchange I didn't have to pay her spousal support. This avenue appeared preferable to trying to stay in the house, paying an overvalued mortgage, paying her spousal support on top of that, while hoping that eventually the value would increase and get me some equity value. The L said FIL could still call in his loan as soon as I was at break-even and force the sale anytime he wanted to get his loan out, leaving me without equity and having put years more good money after bad into the house. It pains me that this appears to be my best solution out of this mess, but there it is.

Now I have to have the same conversation with my real L. This should happen early next week. Does anyone have any additional ideas or thoughts? Feel free to let loose & thanks.
--
RP

[livednlearned]

Hey RedPill  

The L that you consulted with recently, was that a real estate lawyer?

I ended up with a real estate lawyer (in addition to family law attorney and an attorney for splitting the 401K) because my family law attorney thought it was worth it to get specific real estate counsel, and my situation wasn't complicated.

Real estate lawyers will think in different ways, too. Their goal is to protect you from contingencies, which seem to spring up like daisies with BPD ex partners. You might arrange things in family law court that don't stand up in real estate law. Your family law attorney will be good at getting you something that gets the deal done, but it might not be locked down enough given how BPD divorces can drag on.

So the way this went down in my case is that ex was ordered to refi the house by day/month/year. A bunch of things happened, and then, finally, he produced the refi. I had a real estate L look it over and say, nah. This is bad for my client. The judge in my family law court looked at that document, the L gave testimony (by paper), and told ex to go back and get another refi to fix things. Then more things happened.

Looking back, it might've been better to just talk to the real estate L early on, in a consultation, to avoid the part where family law judge had to weigh in. Then add that language to the family law order so I didn't have to wait on pins and needles hoping the family law judge would rule in my favor.

Hope that makes sense.

The real estate L did not make me do a retainer, thankfully. He billed me after the fact and if I remember correctly, it was $500.00 for reviewing the docs and writing his testimony for my hearing. Not a whole lot compared to the numbers I was paying out to my family law attorney.

[whirlpoollife]

I have a question on her inheritance, was it straight cash or was there a property sold then she received money from that? I ask because I received inheritance but it involved a capital gain from the sale of a property. That gain became income which increased my income , which was nothing, which I then owed spousal support.
On my house, I had gift money which I used as the down payment. I also used gift money for major maintence on the house. I had a paper trail on all this.  My L had said it all turned into marital property.  In the end I had to pay my xh 62% of the equity.  That much on account my inheritance made me the one with more money , equitable state vs community property.
I ended up with the house. Xh wanted it free and clear .The. reason I couldn't just gift it to xh was the gift money put into it was from my family . If that wasn't there then starting off new after final divorce would of been not necessarily better but easier mentally.
Your #5 above would be my choice.  Also factor that the more the divorce prolongs there will be more legal fees.

[flourdust]

I'm glad you had that consultation. It's good to understand your options.

[RedPill]

A long delayed update:

The divorce is finalized. The questionable down payment was negotiated away. She got 3/4 of the house sale, a small amount of support $, and 1/2 retirement pension. Custody of D15 is 50/50. I have found a rental home for me, the 2 dogs she abandoned, and D15. The house sale is due to close imminently. There was a clause in our agreement that if the house did not sell by deadline X I would have the chance to refinance myself but a buyer got it under contract at the last minute.

I've come a long way and am feeling strong, safe, and thankful for my daughter's love. I can see now that it's better that I'm out of the marriage and away from the toxic behavior of my ex. Thanks for all the help along the way!

RP