Deed vs Taxes

[Hillbiehle]

I have a call into my attorney and haven't heard back yet.  Hopefully there is some bankers, title, or loan officers that may have experience.  For simplicity sake: I gave my brother $60,000 for a down payment on a house that he wanted to purchase.  To protect my interest my name is on the title.  He took out a loan in his name to purchase the house with my downpayment with the verbal agreement that he would pay me back the money when he was in a better position.  The mortgage is solely in his name and he has escrowed the taxes and insurance and has taken 100% of the tax deductions etc...  for the past 9 years.  Now, he wants to sell out of the house.  He has not taken care of the home and it's underwater.   He is short on cash and now wants me to reimburse him for 33% of all his past expenses (taxes, insurance, etc...)  over the last nine years.  Unfortunately there is no written agreement (lesson learned).  I'm willing to let the $60,000 go, however my concern is if he goes to foreclosure, can the county come after me for the unpaid taxes.  Or would the taxes simply get absorbed by the foreclosing bank and they would continue going after my brother?  Any thoughts on how you perceive this to unfold?  Likely I could give him a check for 33% of his exenses (which isn't right) and possibly get my $60,000 back.  Otherwise, could wash my hands of his issues, lose my $60,000 IF I was sure that I wouldn't get hit paying for his taxes......Frustrating.

Edited September 3, 2015 by Hillbiehle

[Bobby Bass]

Just a thought here, if the property is foreclosed on it becomes the bank problem. I would think that any taxes are or will be placed against the property to be cleared when the bank sells the property. As for giving your relative 33% of taxes and insurance I would only do that after he settled up with you for the rent he owes you for living in your/his house. I am guessing he is claiming since your name is on the title you owe him for owning a third of the house? Nothing in writing for him, terrible lesson to learn for 60k. I am curious to find out how this turns out and what the lawyer said...

[delcecchi]

I am surprised that he was able to get a mortgage loan in his name only with your name on the deed. 

Minnesota is a recourse state.  That means the bank can come after the owners (in this case who exactly that is isn't clear) for what is left of the mortgage after the property is sold.  They will get less due to the tax lien.  And they don't always get top dollar when sold for a variety of possible reasons, like property not maintained well once foreclosure became obvious.

And you both made a mistake by putting your name on the deed.  You should have had a second mortgage lien or something. 

I think the property is the security for the  taxes.  The government gets theirs first.  The bank won't be able to transfer the property to the new owners until the taxes are paid, and if they aren't the government can take the property.  So the bank will pay the taxes and recover the money somehow. 

You have  a big problem.    Let us know how it turns out.  

Waiting to see what an actual lawyer etc says.

 

Edited September 6, 2015 by delcecchi

[dfv87]

OK first off I am not an attorney but a Banker... But there are some red flags for me to this deal. First if you took title jointly with your brother at the purchase but did not sign his mortgage or note???, then the bank would not have recourse with you for the loan. They could get to the property via foreclosure but to take title they would have to show a "purchase money lien", typically they do not do this and this could be a defect in their title chain worth looking into. A defect in their lien could VOID it or at the very least make them have to give you notice of the foreclosure and a chance to remedy. Then if the mortgage gets voided the property is free of the lien and you could as an owner (with our brother) do what you want with it after paying taxes. Have the title reviewed by a lawyer. 

Now in the event the lien is OK, if the bank forecloses, they will add taxes due to your brothers shortfall. They could hold you partially responsible for unpaid taxes only at this point. As to whether brother has a claim against you for past taxes/ Ins... legal minds greater than I would best answer that.

if he persists in the past $$ I would then ask for interest on the $60K as recompense for what he says you owe in taxes and Ins. If he says you are an "investor" and it was not a loan, then ask if the property sold for $100K more than you all paid would you get $60K back or $60K + 1/3 of the profits ($33K)? if he was sharing profits you are an investor, if he is paying you back your investment only then it is a loan. Without documentation both of you will have an issue collecting anything, but the threat of owing each other could be enough to just call it a wash and stop the nonsense.

Good luck with this. Sorry you had to deal with it.

Oh and I also just re-read you post... he cannot sell the property without your signature (and your wife's too if married- MN is marital interest state). So at the very least you can make selling the property very difficult/impossible unless you sign. and you don't need to sign if you are not ok with it.  

[leechlake]

dfv is obviously more qualified than me but from your original post you said the taxes were part of the mortgage and insurance in escrow?  If so the only taxes you'd have due are from any non payments of the mortgage and I'd assume that you couldn't go a year without getting foreclosed on.  If that is correct the amount due for property taxes probably isn't more than $2000 or so?

Regarding him wanting anything from you and assuming he has no money it's all blather.  Is he going to hire an attorney or be able to?  Nonetheless, I'm sorry for your situation mostly due to it being family.  Great luck to you.

[Lip_Ripper Guy]

dfv is obviously more qualified than me but from your original post you said the taxes were part of the mortgage and insurance in escrow?  If so the only taxes you'd have due are from any non payments of the mortgage and I'd assume that you couldn't go a year without getting foreclosed on.  If that is correct the amount due for property taxes probably isn't more than $2000 or so?

Regarding him wanting anything from you and assuming he has no money it's all blather.  Is he going to hire an attorney or be able to?  Nonetheless, I'm sorry for your situation mostly due to it being family.  Great luck to you.

I believe it takes anywhere from 5-7 years for the government to take over a property for unpaid taxes.  I'm almost certain the bank with the mortgage on the house will pay up the taxes way before that ever happens.  

As far as MN being a recourse state, that very well may be true, but I have not heard of any bank coming after an owner occupant for any shortfall.  

[dfv87]

Banks would pursue ANYONE if they think they would get paid back. Most owner occupied foreclosures, there is no  hope to get additional money. If this is a non owner occupied then they would definitely pursue it.

However in this case, I do not think they can come after him for the loan as he did not sign it. Could they go after his brother... yes technically, but in reality banks do not due to the Chap 7 protection and the ZERO chance of getting anything vs attorney or collection costs. Most instead w-9 the "income" (non recovered principal that is forgiven is considered income by the IRS) to the borrower who defaulted and you get to pay tax on it...