Legal Question in Real Estate Law in Delaware
Vacation Home Purchase with a Partner
I am looking into becoming a partner on a real estate investment-a 3 bedroom house with a detached garage that has an apartment above. My partner purchased the property 9 years ago for $130,000. The house is now valued at $400,000. He wants someone to become his partner by taking over the mortgage payments and paying a lump sum up front. His interest rate on the mortgage is very high. My husband and I would like to refinance the mortgage in our name to get a lower interest rate. Is this legal? Would we be entitled to the tax benefit of the mortgage interest, or would we need to split this with him? The house would become ours and he would retain possession of the apartment and the garage. If we choose to rent out the house, does he have any legal right to a portion of the rental income? In order to become equal partners, are we required to pay 50% of an appraisal value to him? As business partners, if one of would die, could we will the other partner the 50% share of the property and how would an inheritance tax be figured?
2 Answers from Attorneys
Re: Vacation Home Purchase with a Partner
This response is for general information purposes only and is not to be considered legal advice. Please make an appointment to discuss this matter with an attorney in greater detail if you decide to pursue this matter.
Your question raises a number of issues and I strongly encourage you to completely discuss this matter with a professional. The word "partner" is a term of art and has certain liabilities attached to it. You may wish to consider forming some sort of limited liability entity such as a corporation or an limited liability company to own the property and then you and the current owner would it turn own the corporation. It is unlikely that you will be able to refinance the mortage to the property unless and until title to the property (the deed) is in your name. It is unlikely that your "partner" will permit the deed to be put only in your name, so he would also need to particpate in any refinancing. If he is willing to put the property in your name, you are talking about a sale of the property (with possible rent-back agreement on the apartment), not a "partnership" interest in it. It is not certain that the current mortgage company would permit you to assume mortgage payments as it appears to be contemplated by you. If the property produces income, he would have a claim to that and the division of the income and expenses associated with the property should be spelled out in a detailed written agreement between you (assuming joint ownership of the property). If you decide to pursue purchase outright of the property with a rent-back agreement on the apartment, this should also be handled in the form of a detailed written agreement.
Please feel free to contact me at [email protected] if I may provide additional assistance.
Re: Vacation Home Purchase with a Partner
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