Ask Terry Questions How to convince my mom to sign a promissory note?

How to convince my mom to sign a promissory note?

By Terry Savage on May 09, 2015 | Housing / Real Estate

Hi Terry,
How do I convince my mom to sign a promissory note? I’m buying her part of the share of a house that we bought together. She thinks I’m underestimating her portion relative to the value of the house. The house has depreciated in value when I bought the house in 2008, but she thinks that that should not factor into the amount that she invested. She wants back what she initially invested, regardless if the property depreciated in value or not. She thinks signing this means we don’t trust her. We just want to put things in writing so that there will be no issues about it in the future. Please help. Thanks!

Terry Says:  Whoa!  I have no idea why you would want her to sign a “promissory note.” That doesn’t cover this situation.   You want to buy her out.   And if you don’t give her the price she wants for her share, she is within her rights not to be forced to sell to you!

The time to have organized all of this was when you purchased the house!  I’m guessing that you couldn’t qualify for a mortgage, or didn’t have enough of a down payment to do this on your own when the house was purchased.  So she helped you out.  Am I right?

So she made a loan to you.  Or was it an investment in the property?  What did she believe at the time?  A loan requires repayment in full (with interest).  An investor would be required to take a loss along with you — IF the property is sold.  If not sold, she is entitled to stay on in the deal, and maybe future home price increases will diminish the current “loss”.

Now, your next steps legally depend a lot on how the property was titled. Are you joint owners, with tenancy in common or joint tenants with right of survivorship.  OR did she just “lend” you the money, and did she get a written IOU from you (and your spouse? — no idea who the “we” is in your question).

Either way, the issue here seems to be what her share is worth today.  So ask yourself, what’s more important — your mother’s peace of mind (knowing she “gets her money back”) — or your bottom line?

If she had written to me, I would have suggested she get her own lawyer, and that she investigate the possibility of getting her money back, based on how the property was titled.  A lawyer could tell her if  it was a “secured loan” — secured by the property, no matter what the current value (much as a bank loan).

Since you are the ones writing to me, I suggest that you think about the situation in reverse.  What if your mother came to you and offered to buy you out at the price you are offering her?  Would you think it is a good idea to sell?

If not, and you want to keep the house, but without her on the title, I suggest you now go to the bank, take out a mortgage in your own name(s), and repay your mom.  Since it is Mother’s Day every day, I suggest you pay her the original amount she “invested”. And if you were a good child, you’d give her a little extra for “interest” she might have earned (not much) over the past seven years!

Now, if you’re going to tell me that you wouldn’t be able to get a new mortgage because the value of the home has fallen, or your credit isn’t good enough, then I suggest you live in the home and stop trying to rearrange things.

Or if it is not your residence, but an investment property, then sell it now at a loss — and repay your Mom.  You can give her all the money back, or prorate the percentage based on how much the value has dropped (say 20%) and then live with your mother being unhappy till the day she dies.

And speaking of that, I would tell your mother that she needs her own estate planning attorney to deal with the issue of her ownership at her death — if indeed her name is on the title with yours.

And to anyone else who has read this far: THIS ILLUSTRATES THE DANGER OF MAKING LOANS TO HELP A CHILD BUY A HOME!!   You should always document this legally.  And if you are making it a mortgage loan, go to National Family Mortgage — a reputable company that is designed to create the legal documents for an inter-family mortgage loan!



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