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Let us assume a shared ownership house, where everything is 50/50 in terms of deposit, monthly payments, bills, and eventually estate agent costs, and lawyer costs when the house is sold.

If the mortgage is over 25 years and for the first 5 years both owners live in the house and split everything 50/50, how do the calculations and ownership percentages change if one of the owners decides to move on and rent elsewhere, leaving the other owner to pay 100% of the mortgage bills etc etc?

After the 25 years, do both owners still get 50/50 when the house is sold?

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It's been a few years. How did this work out for you? –  Alex B Apr 16 at 17:24
    
Sold it in the end. :) –  oshirowanen Apr 17 at 9:22

8 Answers 8

up vote 16 down vote accepted

This is something you should decide as part of entering a partnership with someone. Ideally before you make the initial purchase you have a detailed contract written up.

If you have already bought the house and someone is now ready to move out the easiest thing to do is sell the house. If that is not an option, you'll have to decide on a plan together and then get it in writing.

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House is on for sale, but don't know how many days/weeks/months/years it will take to sell it. –  oshirowanen Feb 8 '11 at 9:38

I second (or fifth?) the answers of the other users in that this should have been foreseen and discussed prior to entering the partnership.

But to offer a potential solution: If the mortgage company allows you to assume the whole mortgage (big if) you could buy the other partner out. To determine what a fair buyout would be, take the current value of the house less the remaining mortgage to get the current equity. Half that is each partner's current gain (or potentially loss), and could be considered a fair buyout. At this point the partner realizes any gains made in the last 5 years, and from now on the whole house (and any future gains or losses) will be yours.

Alternatively your partner could remain a full partner (if s/he so desires) until the house sells. You would see the house as a separate business, split the cost as you have, and you would pay fair market rent each month (half of which would come back to you).

A third option would be to refinance the house, with you as a sole mortgage holder. To factor in how much your partner should receive out of the transaction, you can take his/her current equity and subtract half of the costs associated with the refi.

I would also recommend both of you seek out the help of a real estate lawyer at this point to help you draft an agreement. It sounds like you're still on good terms, so you could see a lawyer together; this would be helpful because they should know all the things you should look out for in a situation like this.

Good luck!

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A little problem with your solution... there's no fair way to assign "current value" of the house unless you sell it. You can have a third party (a realtor or home assessor) assess the house but the only way to really know the value is to find somebody that will give that amount of money for the property. –  Mike Piche Jul 22 '11 at 21:22
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And don't forget to figure in sales commission, escrow costs, etc when estimating the current value. If you sell the house today for $X, you won't net $X - remaining mortgage principle. It'll be more like $X - 6% - misc costs - remaining mortgage principle. –  Mike Kale Mar 24 '13 at 4:42

The ownership of the house depends on what the original deed transferring title at the time of purchase says and how this ownership is listed in government records where the title transfer deed is registered. Hopefully the two records are consistent.

In legal systems that descended from British common law (including the US), the two most common forms of ownership are tenancy in common meaning that, unless otherwise specified in the title deed, each of the owners has an equal share in the entire property, and can sell or bequeath his/her share without requiring the approval of the others, and joint tenancy with right of survivorship meaning that all owners have equal share, and if one owner dies, the survivors form a new JTWROS. Spouses generally own property, especially the home, in a special kind of JTWROS called tenancy by the entirety. On the other hand, the rule is that unless explicitly specified otherwise, tenancy in common with equal shares is how the owners hold the property. Other countries may have different default assumptions, and/or have multiple other forms of ownership (see e.g. here for the intricate rules applicable in India).

Mortgages are a different issue. Most mortgages state that the mortgagees are jointly and severally liable for the mortgage payments meaning that the mortgage holder does not care who makes the payment but only that the mortgage payment is made in full. If one owner refuses to pay his share, the others cannot send in their shares of the mortgage payment due and tell the bank to sue the recalcitrant co-owner for his share of the payment: everybody is liable (and can be sued) for the unpaid amount, and if the bank forecloses, everybody's share in the property is seized, not just the share owned by the recalcitrant person. It is, of course, possible to for different co-owners to have separate mortgages for their individual shares, but the legalities (including questions such as whose lien is primary and whose secondary) are complicated.

With regard to who paid what over the years of ownership, it does not matter as far as the ownership is concerned. If it is a tenancy in common with equal shares, the fact that the various owners paid the bills (mortgage payments, property taxes, repairs and maintenance) in unequal amounts does not change the ownership of the property unless a new deed is recorded with the new percentages. Now, the co-owners may decide among themselves as a matter of fairness that any money realized from a sale of the property should be divided up in accordance with the proportion that each contributed during the ownership, but that is a different issue. If I were a buyer of property titled as tenancy in common, I (or the bank who is lending me money to make the purchase) would issue separate checks to each co-seller in proportion to the percentages listed on the deed of ownership, and let them worry about whether they should transfer money among themselves to make it equitable. (Careful here! Gift taxes might well be due if large sums of money change hands).

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The answer is "it depends".

What does it depend on?

  • Were the circumstances around the person moving out amicable? Was it a romance gone bad or a business arrangement?
  • Are the names of both people on the deed?
  • Do records exist detailing who made payments on what?
  • Are you willing/able to liquidate the property or buy out the other person's share?

If it's a breakup situation, good luck. Whatever you do, get this issue settled as quickly as possible.

In the future, don't make significant purchases with people unless you have a written contract or you are married.

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It was more of a business arrangement originally + a place to live. Both people are on the deed, bank statements show both have paid equally so far. Is liquidation a suitable option? How will that affect future purchaes, credit rating etc etc? –  oshirowanen Feb 8 '11 at 9:40

Both names are on the deed, so the property is jointly owned. You're going to need the second person's signature to be able to sell the property.

Ideally the way to know "what happens now" is to consult the written agreement you made before you purchased the house together. The formula for dividing up assets when dissolving your partnership is whatever you agreed to up front. (Your up-front agreement could have said "if you move out, you forfeit any claim to the property".) It sounds like you don't have that, so you'll have to come to some (written) agreement with your partner before you proceed.

If you can't come to an agreement, then you'll end up in court, a judge will split up the assets, and the only winners there are the lawyers...

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Let's look at the logical extreme. Two people get a house, no money down, 10 year mortgage. One moves out the day after the closing, and the gal left pays the full mortgage. Why in the world would the one who left be entitled to a dime? You offer no information about the downpayment or amount paid during the time both lived there. That's the data needed to do any math.

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If it went to a court, depending on the situation, all sorts of odd stuff can happen. One party could claim that they didn't contribute because they had to take care of something else. (ie. food, child care, helping with a business, etc) –  duffbeer703 Feb 8 '11 at 4:57
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wouldn't the person who left be at least be entitled to the percentage based on the five years s/he paid for? –  oshirowanen Feb 8 '11 at 9:42
    
@user2662 - Yes. But since the poster offered little detail, I offered the extreme case, where (to me) zero is the correct answer. If there was a downpayment, that moves the needle. 5 years of payments, moves it a bit more. I was trying to find a starting point, not cause confusion, sorry if I did. Keep in mind, during the first 5 years the principal paydown is minimal and that's what I'd look at. The benefit is the person avoids a rent payment. There are cases where a buyer is able to rent a room out and cover half the mortgage that way, but the renter gets no equity. –  JoeTaxpayer Feb 8 '11 at 21:20
    
No, the title deed determines what each person is entitled to in the event of a sale of the property. Even if "the gal" paid everything, the "mover on" would still own the proportion that the title deed says he does. –  Dilip Sarwate Jun 25 '12 at 11:59
    
@DilipSarwate - agreed, but I think the question is to ask what the "fair" split would be. –  JoeTaxpayer Jun 25 '12 at 14:16

This is typically an issue for local law and regulation.

Once one person moves out, I would recommend one of the following options:

  • Sell the property and split the profits evenly. It's easiest.
  • Buy out the person moving out.
  • Agree, now, on how much the person moving out owns. Get a written agreement to that effect. You can calculate how much of the house you've bought back from the mortgage, and split that between the two of you; you could also get an accountant or lawyer to help with the calculation.

Generally speaking, if there are clear records of all of the payments made by both parties, all of the costs associated with the maintenance and who made what use of the place, the final ownership can be resolved fairly even in the absence of a clear agreement. The pain and hassle to do it, though, is generally not worth the effort - even if it's an amicable relationship between the two owners. Your best bet is to agree as early as possible on what you plan to do, and to write it down - if you didn't have a contract before moving in together, write one up now.

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Market value and assessments are two different things. No matter how amical the agreement seems on buying and selling, the future could result in damaged relationships without an absolute sale. I would strongly recommend getting into an agreement to split the purchase of a house as a means to save money. If it's too late, sell immediately.

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