Don’t do it

Marie is 32. Tyler’s 35. Jacob is four. The parents both work, earn $185,000 between them, have no savings to speak of, rent, and spent every day pining for their own real estate. With no downpayment, of course, it just didn’t matter how much mortgage their income might qualify them to carry. But with rent, child care, cars, a yearly vacay, clothes, food, cellphones and such there’d never be a pot of money to use for a house. Hopeless.

“I just couldn’t take it any more,” says Sheila. As Marie’s mom she was witness every single week to the moans from her daughter about unfairness. After all, both Marie and Tyler have uni degrees and work in white collar jobs. But no house. Sheila, at 69, is a lowly transportation company dispatcher with a high school diploma and, although separated, had her own paid-for townhouse.

“I guess parents will do whatever they have to in order to help their children,” she told me, “so I did this. And, yes, I regret it.”

Marie and Tyler convinced mom to sell her property, take the proceeds – a little over $400,000 – and use it as a downpayment on a house everyone could move into. It cost $1.1 million, and all three of them signed onto the title plus the mortgage of seven hundred thousand. Sheila said she felt okay about it, since she would have some company around her, but mostly because she’d be helping the next generation get what they wanted but could not afford.

That lasted until closing day on both properties.

With keys in hand, Marie and her husband moved into the main and second floors. Sheila got the basement. A washroom down there had been renovated, but no kitchen. “It has a couple of decent windows,” she told me, “and a walkout to the yard. But still…”

Meanwhile Marie and Tyler agreed to pay for half the mortgage, because that more or less equalled their old rent. Sheila looked after the other half, and all the house utilities. The kids bought groceries for the shared kitchen. Well, not exactly shared, since mom was allocated exclusive periods of time to be in there.

“This is elder abuse,” I told her a few days ago when we spoke. “It’s not about parenting.”

Think about it. Mom put in $400,000. The kids put in zip. They share title, equally and unfairly. All names are on the mortgage. So if the young couple suffers a financial reversal (job loss, sickness, pregnancy) and stops paying, she’s on the hook for the entire amount. Her retirement savings are gone, rendering her dependent. If the kids divorce or separate, a giant mess could ensure. Under no scenario would Sheila benefit, and could lose serious money. Worse, she went from being a woman in control of her own finances and living space in her own property to being a thing in the basement facilitating her adult child and family.

This should go without saying: don’t do it. And if parental guilt, misplaced love and crushing obligation force such an action, ensure an agreement is in place. Paper the deal, spelling out ownership based on equity contribution, the sharing of carrying costs, provisions for family break-up or other changes among the parties and how the agreement will end. Can one party force a sale? Or prevent one? What is the mechanism for a resolution?

Blog dog Shawn alerts me to another fine example of how the overly trusting can be quickly turned into a regretful victim.

Mark Lefebre is a builder. He believed Hendrika Ross was his friend. Together they bought a house in Maple Ridge in 2016 for $545,000, which Ross would live in, making a downpayment of $250,000. But she didn’t, instead arranging a mortgage which eventually amount to $770,000 and putting herself on title as a 99% owner. Lefebvre never checked on the financing or the legal agreement, and carried through with his end of the bargain – a $62,000 deposit plus $2,500 a month plus annual lump sums of $30,000 to $45,000 to equal her downpayment and be a joint owner. He also reno’d the place, bought furniture and paid half the insurance premiums and property taxes.

The Maple Ridge house now in dispute.

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Here is a snippet of the media report: “From 2016 to 2023, Lefebvre made the monthly payments, plus lump sums between $30,000 and $45,000 a year. In 2021 he asked, as agreed, for the property to be sold. But Ross told him the sale couldn’t happen because the mortgage hadn’t been paid yet. He never asked to see monthly mortgage statements because he trusted Ross and “continued to believe Ross was a genuine friend” with whom he socialized every day and regularly had dinner.”

Well, the lady cut off communication with him when he asked to sell after the agreed-upon period of five years. He has no equity to show for the money spent. Now the only recourse is the courts – which may rule his trust and sense of friendship in no way compensate for his carelessness and inattention.

The moral of these stories?

Money changes everything. And everyone. Not for the better.

A longstanding blog rule is invoked: Never buy real estate with anyone you have not slept with. Amen.

About the picture: “This is Luna,” writes Tim “She is an 8 year old American Eskimo!”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2024/10/02/dont-do-it-4/