My sister lent my father the down payment for his home and put her name on the mortgage — then he refinanced

Dear Moneyist,

My sister lent our father the down payment to buy his home in Florida.

Both their names were on the mortgage. After three years he wanted to pull out some equity. He re-mortgaged in his name only and asked her to sign off on it. She signed a quit claim to take her name off the deed, so he could get the homestead exemption.

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She agreed and the deal was he would put her name back on the deeds of the house after Jan. 1. My worry is she has no legal recourse if something happens to him. The original deal was if anything happened to him the house automatically went to her as they were joint owners.

I want to make sure she at least gets her original investment back without going through probate or possibly having to fight for it with other relatives. She is too nice and won’t push the issue. What is the best course so her down payment is protected?

Concerned Sister

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Dear Sister,

It’s a messy business buying a home with a partner, but buying one with a parent seems more problematic. Does your sister expect to be reimbursed for the down payment? Who pays the mortgage? Does she realize she is still responsible for the loan, even though she’s off the deeds? There are so many moving parts in this story. It may be that your sister wants 100% or 100% out.

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Currently, her name is on the mortgage, but off the deeds of the house. Signing a quit claim deed to transfer ownership of the house to her father was probably inadvisable. She will have a more difficult time taking her name off the mortgage itself. The bank presumably wanted your sister on the loan because (i) she has a higher income and (ii) she has a better credit score.

For that reason, it’s unlikely that the bank will be willing to take her name off the loan. She provides extra security that the loan will be paid and, if they default on the loan, they’ll both be held responsible for the loan. That, in theory at least, doubles the chances the bank will get its money back. If your father can’t pay his half, your sister will be responsible for the entire loan, and not just 50%.

I have one question for you and your sister: If he needed help to take out this mortgage and, presumably, it would have put him under additional financial pressure, why did he refinance? That decision should not have been taken lightly. It also gives me slight cause for concern about your father’s fiscal responsibility, given that he has already asked his daughter for financial help.

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So what happens if one of them dies? If your sister and father have joint ownership with rights of survivorship, your sister would inherit the home if your father predeceased her. If they don’t have rights of survivorship, they’re “tenants in common.” So your sister and father would need to (a) make a will and (b) clearly name the person who will inherit their share of this real estate.

Under the circumstances, I believe your father should name your sister.

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