Question:

I inherited a home with my sister which has a value of about $540,000 and no mortgage. She wants to live in the house. What would be the normal agreement of who pays what bills? Is there a form with general ways to formulate the agreement that I could purchase? I would be leaving my $270,000 half sitting there if we did this.

Response:

There’s no right or wrong answer. You both have the right to live in the house, you are both responsible for the cost of its maintenance, but you also have a right to demand that the property be sold for you to receive your fair share of the proceeds.

Share Expenses with Resident Owner Paying Rent

One approach would simply be for your sister to agree to pay all the expenses and take on all the responsibility of maintaining the property for as long as she lives there. This may be fair or unfair for either of you, depending on what the fair market rent for the property might be and the extent of its maintenance.

For instance, let’s assume that all maintenance, insurance and tax costs each year totaled $10,000 and fair monthly rent for the property was $2,500, or $30,000 a year. By not renting the property to a third party, you would be foregoing about $10,000 a year ($30,000 – $10,000 = $20,000/2 = $10,000). Based on these figures, your sister could agree to cover all the costs and pay you $10,000 a year in rent. Your sister might well argue that this amount should be discounted since she would be taking on the property management duties and there would be no risk of lost rent when one tenant moves out and another moves in.

You still would both be equally responsible for any necessary capital expenses, such as replacing a boiler or putting on a new roof.

Sell But “Take Back” Mortgage

Another option would be for your sister to buy you out over time, if she can afford to do so. You could structure this as an outright sale to your sister for $270,000 paid out over time. If she were to pay you over 15 years with an interest rate of 4%, you would receive about $2,000 a month, for a total of $360,000 over time. In this case, the house would belong entirely to your sister, and both maintenance and capital expenses would be entirely her responsibility.

If Your Sister Can’t Afford Either Option

But what if your sister can’t afford to pay you rent or to buy the property from you? You could, in effect, have a transfer of the house to you over time. If, in the first example, your sister could pay the house expenses but couldn’t pay you $10,000 a year in rent, you could agree that a debt in this amount accrues over time (with interest) to be paid when the house is sold. This way, your sister could continue to live in the house, but you wouldn’t lose the benefit of your interest in the property.

Write It Down

Whatever you decide, write it down. The act of drafting an agreement serves several purposes: (1) You find new issues to resolve; (2) it protects against different memories of the agreement; and (3) it helps prevent misunderstandings since the process should help you clarify what you mean by the provisions in the document.

Legal Zoom provides a form for co-ownership of property here, but it doesn’t appear to provide for one party living in the property. It could be used as a start, with you and your sister filling in your terms. My search of the web didn’t reveal any ready-made agreements right on point for your situation.