Ownership of the farmhouse - Who owns what in a multi-generational new construction project?

In an earlier blog post, I mentioned that getting a loan for unimproved land (i.e. pasture land with no house) is difficult and typically requires a large down payment.  AS IF that wasn't tricky enough to manage, there are many other things to consider:

If you and your parents decide to build a multi-generational house, presumably each part is coming to the party with some money.  If your parents are paying for "their half" of the house and you are paying for "your half", who owns the house?  While this is definitely not an area that I have thoroughly researched, but here are some options/considerations.

First and foremost, the zoning classification of the property will likely govern a lot of the ownership matters.  With a lot that is zoned "single family residential", and after conversations with the county, that classification meant we could not split or divide the property into separate tracts.  My parents were leaning toward building a small guest house potentially on a separate tract of land (so they would own the house, own the land).  This option would have been the best because they could have retained ownership and we would have just wanted a right of first refusal (which would essentially mean that we would get the right to buy from them first if they decided to sell).

Johnson County officials indicated that land zoned agricultural, rural or otherwise (basically anything but single family) can typically be easily subdivided.  However, consider that you will have to pay money for this process, including have new proposed plats done by a civil engineer and any fees associated with approval.  And the county could choose not to approve the split.

The below options for ownership/financing are considering that the land is not able to be split ownership-wise:

One party contributes all cash, other party contributes cash/mortgage

This option seems to make financing the easiest.  Most banks will want to have the priority lien rights (and this option will likely lead to the lowest interest rates).  Often the bank will want an affidavit signed indicating that the cash portion was a gift and not a loan.  However, this option may have some implications to consider:

• tax - Tax-free gifts have limits, so please consult a tax professional.  There may be options where this portion of the property funding is a loan that is paid back through rental payments over a period of time (which is reflective of the actual situation).
• ownership - The property will likely be owned by the party getting the loan.  

Each party needs some type of loan for their part

This option may be difficult unless one party is not getting a mortgage but rather a personal loan or a HELOC or other loan secured by a different property.  It is difficult (perhaps impossible) to get a mortgage when you are not an owner of the subject property.

Both parties contribute all cash

This option is obviously the easiest from a financing standpoint.  However, there are protection concerns that apply to all of the options (discussed in the following section).

Parting thoughts - protecting the non-landowner Party

What if your parents end up not liking the property or living together?  What if you end up getting into a big fight and need one party to move out?  What if there is a divorce/death with one of the parties?  These are all discussions that should be had before making this commitment and there are different ways to solve these concerns that should be discussed with an attorney.