how to divide ownership of a house with family member who stopped contributing 8 years ago?

Question

My brother and I bought a house together back in 2006 for $270k. We both contributed 50% to the mortgage between 2006 and 2011.

My brother moved out in 2011 and stopped contributing to the mortgage, but his name is still registered as the half owner of the house. I continued to pay the mortgage on time since then.

My mortgage is up for renewal in 3 months. I have extra cash sitting around and I just want to pay off the remaining mortgage entirely.

My brother and I started a dialogue about whether it makes sense to change ownership of the house to be entirely under my name since he hasn't been responsible for it any way since he left.

If I choose to sell the house because I want the capital to do other things, how do I determine how much of the house belongs to him?

Is there a formula I can use to calculate ownership?

Note: Our parents have been living here for free since 2006 and my brother and I jointly took care of them until 2011. Since 2011 I've been the primary care giver for our parents.

Answer 1

There is no easy answer, no standard formula, it will be what you two can agree upon as fair since there was no agreement in place up front unless you get the courts involved.

If you sold in 2011 a 50/50 split would have been obvious and easy. However, since that point his money has been tied up in the property and he hasn't benefited from it like you have by living in it. Meanwhile you've been making contributions to it as well. He is certainly entitled to some return over the last 8 years assuming property value has increased and you'd feel cheated if you paid off all the mortgage and then he got half the proceeds.

Assuming property value has gone up over the last 8 years, a reasonable buyout will likely be more than 50% of the 2011 value but less than 50% of the 2019 value. If your brother views caring for your parents as a burden lifted from him then that may factor in as well.

Answer 2

How much ownership he has depends on how your interpret the payments. Assuming both of you made equal payments (both down payment and monthly) up to 2011, one method would be to take (down payment + monthly payments up to 2011 - interest up until 2011)/($270k * 2), and that's the portion that he owns. For instance, if you had a $60k down payment, and by 2011 the two of you had made a total $70k of payments, but $20k of that was interest, then he would own ($60k + $70k - $20)/$540k = 20.4%. So you would owe him 20.4% of the selling price.

Another method would to simply calculate how much more interest you would have paid if your brother hadn't made his payments, and pay him that much.

The first way is treating your brother's payments as being payments toward the current equity, while the second is treating them as debt you owe him. There are a variety of other interpretations, such as treating is as payments towards the equity as of 2011.

A further complication is how to treat your possession of the house from 2011 to the present. On the one hand, you no longer had to share the house with him, but on the other hand, you presumably bought a larger house than you would have if it hadn't been for your brother, so even if he wasn't gaining a benefit from the house, he was causing you a cost. And if much of the benefit of the house accrued to your parents, then that raises the question of whether the cost of that should be shared between the two of you, or whether you were accepting that you would solely be responsible for that. Those are more Interpersonal Skills questions than Personal Finance and Money.