Father-in-law loaned us money for down payment, now asking for more than we agreed

[seattlebreeze]

[Washington State]

My wife and I are in an awkward situation regarding ownership of our house that my father-in-law helped us purchase. Hopefully there will be no need for legal action and we can resolve everything amicably, but I’d just like to know what our situation is legally.

TL;DR: Father-in-law helped us buy a house right before we got married. His name and my wife’s name are on the title. He covered down payment, we pay the mortgage, agreement was once we pay back down payment + interest we own the house 100%. Now the house has appreciated he’s asking for an extra $50k before transferring title to us. What's our legal situation?

Two years ago when we were about to get married, my wife’s father approached us and suggested helping us buy a house because of the historically low interest rates (my wife’s parents are Chinese, own several small rental properties, and are big on family financially supporting each other). We were both just starting in our careers and not planning to buy a house any time soon, but it seemed like too good of a deal to pass up.

My father-in-law put up the down payment and purchased the house in my wife’s name and his name. The title, mortgage, insurance, everything is in both of their names. My wife and I pay the entire mortgage each month, all taxes and insurance, house repairs, everything. He told us that we could pay him back the down payment over time once we were financially comfortable, just adding 3.75% yearly interest to cover inflation, and that once we have paid back his down payment we will own our house 100%.

Even though the monthly mortgage payment was significantly higher than we were planning on paying for housing, we accepted the deal because we knew it was a good investment and we’re partially paying ourselves as the principal is going to our equity in the home.

Fast-forward two years. We’ve been paying the mortgage entirely, and we’ve made some home improvements. I’ve mentioned a few times that we should start paying back our down payment, but each time my father-in-law told me there’s no rush, he knows we’ve had a lot on our plate with changing jobs and home repairs needed.

The average home value in our neighborhood has increased much faster than we expected and now our house has appreciated $100k. That’s great but since we’re not planning to sell any time soon, it’s just a number at the moment.

Now my father-in-law has contacted us and suggested that we refinance. Because the home value has increased we can cash out his down payment amount immediately, add that to our mortgage, and pay back now. The new mortgage would be in our names only. Great! The catch is, he’s also asking us to commit to give $50k (half the current appreciation) ten years down the road to help my wife’s sister get started, in order to be “fair to both daughters.”

Neither of us feel comfortable committing to something like that even if it is so far in the future, since we have no idea what our financial situation will be, what the housing market will do, or if we’ll want to sell by then. But more importantly, it’s very different from the agreement we made at the house purchase to pay back the down payment. There was never anything about splitting the house appreciation, and in fact he told he us we would be getting the gain from any future appreciation. That was the basis for us agreeing to take on the whole mortgage.

I’m hoping we can resolve this amicably, but just in case I’d like to understand what our situation is legally. Since both my wife and my father-in-law are on the title/mortgage, neither party can sell or refinance without both party’s consent, right? Since we have emails recording the terms of our informal agreement, do those have any legal standing if there were to be a dispute?

Thanks for reading this wall of text and thanks for any advice!

 

[latigo]

(Very articulately written. And raises some intriguing legal issues. Which aren't going to be resolved here, but will be mentioned for informational purposes only. You will need your attorney to sort it out.)

The first question is to ask know how the deed transferring title to the two named grantees expressed their shares of ownership. If it made no delineation as to proportions conveyed, then they took title as co-tenants with each owning and equal undivided interest. Which if so (and more likely than not) and not otherwise altered by other attending circumstances, obviously means devious father-in-law's portfolio includes half of the appraised value of the house.

Assuming that the ownership of record stands at 50/50, then we need to examine the various verbal agreements as to their legal consequence as to his 50%. And the first hurdle encountered is the statute of frauds as it affects "once we have paid back his down payment we will own our house 100%. "

Which could only be interpreted as a conditional verbal agreement to deed his interest to you and wifey. And that runs smack into the statutes of frauds which holds that agreements to transfer an interest in land are only given legal effect when evidenced by a writing signed by the promissor.

In other words, if bàba were to be sued for specific performance of that verbal agreement, he would "ostensibly" have an iron clad defense by simply pleading the statute of frauds - nothing in writing, bàba wins. But I advisedly chose the word "ostensibly". Why?

Because there can be certain circumstances that will constrain a person from asserting what would otherwise be a legal right; known generally as "equitable estoppel".

Briefly (because it is most complex) the principle is such that when the act of enforcing a legal right will result in an undue injustice suffered by another the claimant is prevented/stopped from asserting it.

And here I see some grounds for apply the principle. Especially with regards to you and your wife making a drastic change in your long term financial plans by tying yourselves to huge monthly mortgage payments solely upon the understanding that all bàba was to receive is a return of his investment.

But that is an area you need to explore with your lawyer.

In the meanwhile I want you to bear this in mind. The only available source for the $50K is the equity in the house. (He has no personal claim against either of you.)

And the house cannot be sold on the open market without both recorded owners joining in the deed of conveyance, (plus yours perhaps due to Washington's marital property laws.)

If you and wife refuse to join with bàba in selling, his only alternative to get to any part of the money he belatedly claims is due him (extortion actually) is for him to file for partition. And that would be cutting off his nose to spite his face. He did not make his wad buying property at market value to see it sold at a public auction!

Hope this helps some. Probably not.

 

[seattlebreeze]

Hope this helps some. Probably not.

Very helpful indeed. Thank you!

 

[latigo]

Very helpful indeed. Thank you!

There is another element of this co-tenancy estate created between daughter and father that may be of interest to you.

As a 50% owner he is equally responsible for the mortgage payments, the insurance premiums and other expenses necessarily incurred in maintaining the property and ownership. And it doesn't make a whit of difference who chooses to live there, him, her or both. Nor can he offset the fair market use of the property against his share of the above expenses. In other words, an absent co-tenant cannot charge an occupying co-tenant rent.

So the longer you guys make the mortgage payments, etc., the less net $ interest he has in the house.

What you guys need to do is have your attorney render an opinion as to the extent and nature of that interest. It is a bit of a puzzler.