Home Ownership by Two People

Unless Guy A has enough money to pay off his half, there will still be a mortgage on the house and Gal B will be responsible for if she becomes an owner.

Probably.

Is there a due on sale clause in the mortgage? If so, it might get triggered by a sale of a part interest. Presumably they want to get the house in both their names as joint tenants with right of survivorship. They probably also want wills that give each other the rights to house and contents.

They might also want a partnership agreement specifying how they would handle a break up. Hmmm. I think I'd want a lawyer involved.

-- Doug

Put it in writing. Especially any parts about uneven contributions and benefits. Double especially about have to handle change or disolution of the situation. Could save money on IRS audits and lawyer fees later.

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Is this more than a business relationship. There needs to be written provisions - see a lawyer who does pre-nups a lawyer for him and one for her or a partnership agreement if this is strictly business. There are also lawyers who do ""shack up" agreements.

When the house is sold the mortgage company stands 1st in line. If her contribution is used to pay down half the outstanding mortgage, then she could be listed as a 2nd lien holder and come right after the mortgage company.

When I remarried (2nd marriage for both of us) my wife had some equity in her house. I added a room (cost was about equal to her equity) and am now listed on the deed as half owner. Mortgage is still in her name and we are paying it off jointly.

"Avrum Lapin" wrote > There are also lawyers who do ""shack up" agreements.

These experiences help. Thank you.

Oh dear. What you say makes sense, and this now is indeed a concern. Or maybe it's a "dealbreaker."

Yes, I think an attorney one way or another is going to have to get involved in any "joint" home purchase, for the peace of mind of both A and B.

Understood about survivorship etc.

I guess it's a vexing situation since (1) the two will not marry and so are not a legal "partnership" in this sense; (2) the two have different goals for their money. For Guy A, a mortgage makes some sense, because he does not have the cash and can refinance at a low interest rate. Gal B (me, in early retirement, so no job income a bank can examine, and so banks do not like folks like me for mortgages?) probably would not qualify for a mortgage, or if she did, it would not necessarily be at a super low interest rate. Plus the transaction fees of a mortgage are money down the drain to Gal B.

I suppose Gal B could still consider obtaining a mortgage as an investment, leaving the money she would have used to buy half the house in stocks and bonds. Or Guy A might be ultimately convinced to pay down the mortgage, using Gal B's half and contributing the other half himself.

Thanks for the input, Douglas and Rick. I spoke to another on this as well, and all the discussion is clarifying my thoughts. There is no rush, but Guy A and Gal B are considering some what-ifs. They want to go into anything with eyes wide open and so make this or any other arrangement work as well as it can.

Elle, upon guy A's hypothetical death would his half of the house go to his heirs or Gal B? If the former is the answer, JTWROS would be counter-productive.

While I'm sure there are multiple answers, a cross-purchase buy/sell agreement may serve your needs. Guy A buys term insurance on Gal B for half of the houses value and vice versa. Upon the hypothetical death of guy A, his heirs get his share of the house and Gal B gets the insurance proceeds. Then, bound by prearranged contract, you use the insurance proceeds to "buy" the other half of the house from the heirs with the insurance money. If the "arrangement" is dissolved before anyone's demise, simply swap policy owners. What they do with it from there is up to them. Its an age old business succession tool.

One drawback is the house can greatly appreciate and the heirs feel that the insurance proceeds do not cover 50% of the house's new,appreciated value.

I'll readily admit that it may seem simpler for Guy A to buy insurance on himself, name his heirs as the beneficiaries and leave the house to the other tenant, but heirs often have a harder time grasping the "transfer" concept and will often end up in court fighting for their share of the house.

Good luck

Elle, upon guy A's hypothetical death would his half of the house go to his heirs or Gal B? If the former is the answer, JTWROS would be counter-productive.

While I'm sure there are multiple answers, a cross-purchase buy/sell agreement may serve your needs. Guy A buys term insurance on Gal B for half of the houses value and vice versa. Upon the hypothetical death of guy A, his heirs get his share of the house and Gal B gets the insurance proceeds. Then, bound by prearranged contract, you use the insurance proceeds to "buy" the other half of the house from the heirs with the insurance money. If the "arrangement" is dissolved before anyone's demise, simply swap policy owners. What they do with it from there is up to them. Its an age old business succession tool.

One drawback is the house can greatly appreciate and the heirs feel that the insurance proceeds do not cover 50% of the house's new,appreciated value.

I'll readily admit that it may seem simpler for Guy A to buy insurance on himself, name his heirs as the beneficiaries and leave the house to the other tenant, but heirs often have a harder time grasping the "transfer" concept and will often end up in court fighting for their share of the house.

Good luck

Elle wrote: [...]

I don't think any of the comments about mortgages I've seen in this thread (the above and one other) make too much sense. All the examples seem to involve person X giving money to person Y in consideration for a 50%-share of something Y doesn't even own 50% of, let alone 100%. Even without various clauses that probably cause the mortgage to become immediately due and payable, why would someone invest dollar-for-dollar in an asset that someone else had a higher claim to? (Not to say that I've never done that...)

Let's face it, the bank has first dibs on the property until the loan is paid off. (Maybe that's what was meant by "responsible for the mortgage", but there is no responsibility in the traditional sense -- for example, the mortgage won't show up on person Y's credit report). The only meaningful solution is for the original owner to refinance at

50% or less of the value of the property, using the cash to help pay off the prior mortgage. Then the cash investor would own half of the property pretty close to "free and clear", assuming there was no significant loss of market value in the future. But she could still be forced to sell against her wishes if person A defaults on the mortgage.

As a side note, only the person who is legally obligated to pay the mortgage can take an itemized tax deduction for it.

[...]

not a legal "partnership" in this sense; (2) the two have different goals for their money.

Exactly. If Gal B wants to invest in real estate, go for it. Pick a property and invest away. If B wants to pay half of the cost of supporting the household, just do that. Costs of supporting the household include mortgage interest, insurance, groceries, repairs, appliances, property tax, utilities, and so on.

-Mark Bole

wrote

No; to clarify, Gal B understands that, minimally, retitling and refinancing would be necessary to ensure she has something like a 50% claim to the house. She would be present to write the check to the bank when the mortgage was paid down by 50% (or a bit more to cover the house appreciation). Though this would be the with the emphatic caveat that you and others point out: Because of the mortgage, the bank has claim to her house. So some sort of variation on this would be necessary.

Gal B is shortchanged with this scenario, in my estimation, since at the moment she does not want to pay interest via a mortgage.

Kastnna, I have noted the alternative you presented.

This is a work in progress; no rush. Just trying to go in having an idea of all options.

Guy A and Gal B want to "jointly own and occupy" a house. This is a not a landlord-tenant relationship but a roommate relationship.

Does he have equivalent money to 1/2 the value of the house elsewhere?

The house was purchased in the housing bubble, probably near the top.

The proposal that B pay off 1/2 the mortgage I see as a problem as then A would much less to lose if the house was lost.

Originally A would lose the house but very little equity. The mortgage holder eats the loss. With 1/2 the loan paid off B eats the loss (A has almost nothing to lose).

Consider the situation if housing prices were to fall 50% and payments couldn't be made due to job loss. The house is sold at forclosure at

50% of original price with no money left over. Neither A or B get anything it all goes to the lender. B's 1/2 of original price is just gone, A lost nothing.

What's worse if the the price falls farther than the 50% mortgage amount. Then the possibility exists that the lender gets a deficiency judgement against both A and B and requires them to pay the deficiency. If only B had money left she pays (assumes B is on loan at this point, putting her on title might require putting her on loan?).

How about A sells an option to buy 1/2 the house to B at the current price in return for a stream of payments during the option term which would pay 1/2 the loan payments -- B can earn interest on the money she would have paid toward the loan and can use them to make the payments (assuming similar and fixed interest rates). This way if the house price drops B doesn't have any risk, she can abandon the option while A can abandon the house.

Beware IANAL and don't know what the tax or other traps might lurk in this.

The form of ownership that fits this description is a tenancy in common, and if you google that term you should find plenty of reading about how to establish one and draft some kind of ownership agreement to cover the details about dividing expenses, etc., and the caveats that go along with TICs.

RE: value -- I believe a TIC interest should be worth less than 1/2 of the appraised value of the home, because of the potential problems that can come up with a TIC. Just the liquidity issue suggests a discount...you need the co-owner's permission to sell, and face the risk that the co-owner will take you to court to force a sale.

-Tad

There is no legal right-of-survivorship unless the parties are married, in real estate or any other asset. No deed can be titled as Joint Tenants without a marriage. The deed in this instance would be titled, "Guy A and Gal B, each as to an undivided 1/2 interest, as tenants in common" (or whatever the interest is, could be 1/4 - 3/4 or any other percentage, although this is unusual).

Elizabeth Richardson

Quite true. Nowadays the chances of divorce hovers around 50% if I am not mistaken. So any financial planning for young people, especially newly-weds, faces a tremendous threat on the horizon that makes any long-term planning as far ahead as retirement of less value. The question of what one is going to do if he or she turns out to be in the unlucky 50% needs to be addressed, better sooner than later.

But that is a risk for both owners. Thumper

This may be dependent on the state. My bride-to-be and I bought a house in Texas and had no problem titling it JTWROS. It was seven or eight years before we actually tied the knot.

-- Doug

It may be simplest to just pay Guy A an agreed on rent. I did that when I moved into a house owned by my bride-to-be.

-- Doug

As another poster has suggested, this may be according to state law, while I believed this was universal. I know that tenants by the entirety does not exist as a way to title real estate in all jurisdictions, as I worked in the title industry on the west coast for several years. However, Joint Tenancy in those jurisdictions is reserved for married couples only, and it is the only way for title to pass automatically and without probate in those jurisdictions.

Elizabeth Richardson

Very possibly so Elizabeth. I could not accurately speak for all the states.

It absolutely is state-law dependent.

Not in MA. Tenancy-by-the-entireties is allowed in MA (and reserved to married couples). But as far as I've been able to tell, JTWROS is available to anyone.