How to handle shared mortgage payment if one person can't pay their share?

Question

I have been struggling with figuring out how to handle mortgage payment on a common apartment after a breakup. I am usually good with numbers but those configurations all seem to make some sense for me.

I went through a breakup about 3 months after purchasing an apartment together. They moved to another country after the breakup for work reasons (which was planned beforehand). They don't make enough of a salary to pay both their rent in the foreign country and the mortgage. I make good money at home and I am living in the apartment, so I agreed to pay the mortgage when they are gone. I am comfortable with the idea of paying all of it. However, I want to get more money back when we sell the apartment, because my idea is not to pay back their part of the mortgage.

I can't figure out how this should be done though. Since we are co-owners and each of us is liable for half of the mortgage. We both put the same amount of money for the down-payment. We can reasonably expect a profit when we do sell the place.

As I see it, there are three possibilities (all of them with me paying the mortgage each month because I can afford it and want to do it, and all of them involving paying back the mortgage and all the fees after the sale):

1. sharing the profit equally. This does not seem fair to me because it means I am paying back their half of the loan and they get that money back.
2. getting all the money I put in for mortgage payments and then sharing the rest equally if there is some left. This does not seem fair to them as it is the opposite of the problem above. But I am not sure of that.
3. getting back half of the amount I paid for mortgage payments and then dividing the rest equally. This sounds the best to me but I am afraid I might be missing something.

I would like to know which option is the fairest (might even be one not listed above) and how I could handle that. Bonus point if the answer is very easy to understand, as this is something I have been struggling to wrap my head around.

Answer 1

Transfer the ownership of the house now.

If you have broken up and your SO has moved away you don't want them to have a share in the house you are living in. They can cause you a lot of trouble down the line, including:

• vanishing and never paying you back any loans;
• preventing you selling the place when you want to (by refusing or just by not being there to sign the papers);
• demanding you sell when you don't want to;
• showing up and demanding to live there
• dying and leaving their share of the property to someone else

and lots more. I know you think they won't do this, but a lot can change in a few years, and just them being unavailable to sign papers will cause you a huge amount of trouble.

Also be aware that if they stop paying the mortgage (whether they can't or just don't feel like it) you are liable for all the payments. And even if they make no payments and you keep paying for years, they still own half the house and will get half of any profits. (If you already have a legal agreement about how to split the house the above may not be the case, but from your question it sounds like you don't.)

The process for doing the transfer is:

1. Get a fair valuation of the house, by some means you agree on.
2. Get yourself approved for a mortgage for this amount, less whatever equity is left in the house. (Note that if you can't get such a mortgage then you can't afford the place on your own and you need to sell now - because your SO clearly isn't going to make payments).
3. Get a lawyer to sort out the sale from you jointly to just you. (Definitely get a lawyer - the small cost will be well worth it).
4. Your SO should get back half of the difference between the current value and the amount outstanding on the mortgage.

If there is a reason this transfer is impossible, absolutely definitely get a lawyer to draft up a new agreement about how the value of the house is to be divided. Make sure your SO can't hold up a sale (i.e. doesn't need to be there or sign anything), has no right to live there, and that they know exactly how much they are going to get on the sale.

Answer 2

Go with DJClayworth's suggestion. If you don't, in addition to the problems he pointed out, you're in for a very messy negotiation when you sell (even if you both agree to sell at the same time and both agree to sell at the same price, which is not a given).

Why? Because it's like a divorce settlement, the chances you agree quickly on how to share the profits of the sale are infinitesimal:

• You are paying for most of the mortgage. That probably means you should get a bigger share of the profit, don't you think?

• But you are living in the apartment, so you are benefiting from it, and your ex-partner should be compensated for that, don't you think?

• But you will probably be the only one contributing to the upkeep of the flat. Back to more for you.

And so on, and so on.

Get a valuation now and buy their share now. If they want to make a profit on real estate investment, they can buy their own property and pay for it themselves.

Answer 3

As Dave Ramsey says, "The only ship that won't sail is a partnerSHIP."

That means you essentially have a joint venture in this property. You need to sell your half to your partner, or your partner needs to sell their half to you, end of story.

Get a fair assessment of the current value of the property and pay the other party out their due, or sell it and move, split the value.

You need to get out NOW! No joking, NOW. Start making the calls NOW. And transfer the ownership ASAP.

Answer 4

Just think of it as you loaning them the mortgage payments until you sell the house.

Suppose (for the sake of round numbers) you bought the house for $100k with a downpayment of $10k each and a mortgage for $80k, then you sell the house for $200k when there is still $40k owing on the mortgage.

At 5% over 25 years the monthly payments are $468.

In the original plan, you would have paid the mortgage payments equally ($234 each every month). When you sell the house, you would each get half of ($200k-$40k), i.e. $80k.

In the reality, they only paid their share of the mortgage for 3 months (I assume) and you have paid the full monthly payment every month until you sell the house.

So when you sell it for $200k and have $160k left after redeeming the mortgage, you first divide the remaining balance equally between the two of you, then you take for yourself $234 * the number of months you paid their share (with a nominal interest amount if you agree that between you) from their share.

Answer 5

This is lawyer ball

Really, it's time to get the big guns involved. Even if this deal is amicable, you need outside help creating a mutually acceptable arrangement. There needs to be a written contract, and it needs to be set up right.

This is how I would do it. I would use a share-based organization like an LLC in share mode.

• Every dollar/Euro/peso/zloty/quatloo anyone puts into the investment constitutes a share. That share is credited at the time they put it in - very important! So each of you are buying "Shares" as you go.
• If a person previously took money out of the investment, that is them selling their shares back at the same 1.0 quatloo-per-share price they paid coming in.
• Shares are tradeable; you can buy out the other person's shares at... Really any price you want to negotiate (nominally 1.0 per share).
• Time is of the essence. It matters not only how much they invested or divested, but when. Because--
• Every year on some date, the total shares the person held at that time is tallied up. They get additional shares equal to their shares x (mortgage interest rate). If they have 10,000 shares and your mortgage rate is 4.73%, they get 473 shares. So effectively they are getting paid interest on the use of their money.
• I gather you haven't been doing this. Go back and do it retroactively. Short work for an accountant.
• When the property is liquidated and everything settles, you divide net profits by number of shares outstanding, and that is the "price per share". Both shareholders cash out their shares at that rate.
• If any unexpected liability pops up after cash-out, actors owe that in proportion to their shares held at cash-out.

Of course, this is an ugly system, not necessarily one you'd choose from the outset. The reason is the necessity to apply it retroactively, and it's probably about as fair as you're going to get. You can peg down your past payments from your own records and from the lender's.

Answer 6

If your home has gained a lot of equity then you are benefitting from being able to afford to live there at what is basically a discounted price relative to what it would have cost for you to have purchased today. Even if you could have bought the home on your own at the time you didn't, your ex contributed a significant portion of the down payment. Now, because the market is doing well, you want to reap all of the benefits by low balling your ex to get out of the mortgage for nothing. Yes, you are paying the bill every month but your ex deserves to be bought out of the mortgage at a fair price.

Fair would be returning the down payment and giving them their half of the equity. You can get nit picky and figure out how much of the principal your payments reduced (very, very little during the first 10 years) and tell them you are deducting that amount, which is fair. They made the initial investment with you in good faith. Take this as a lesson to not jump into a long term contract with others when the relationship is not rock solid.

Answer 7

To add to Vicky's answer, I think his answer is still unfair to you. You are taking the risks for this house and they are/will be taking the benefits.

If I were you, I would evaluate the price of the house now. Do it in two different way:

1. With an expert: "I think this house is currently worth X on the market"
2. Financially: "We have all payed Y for this house and not to loose money, we must sell it at this value Y"

If X > Y

Compute the margin you'd make on this house (X - Y). Your part should be half this margin M = (X-Y)/2.

Then compute participations for both parties: you have paid Me and they paid Them (making sure that Me + Them = Y).

Sell the house now and redistribute (M * Them/Y) to them.

Let's take some dumb numbers to explain:

1. Acquisition cost: $100
2. Sold at: $150. Remove all fees (lawyer, whatever), remains $70
3. Each party should get half of that if they had paid evenly: M = $35
4. You've put Me = $15 in the operation (this accounts for your mortgage, repairs, whatever), they've put Them = $10 in the operation
5. You should give them ($70 * $10/$25) = $28, you'll have ($70 * $15/$25) = $42. If they'd paid as much as you did, they'd have had $70 * $15/$30 = $35 so this is fair.

If you don't want to sell the house now because you're living in the house, you should agree with them (written consent signed by both party, ask a lawyer) about this future payment terms since the longer you live here, the better it'll be for you. In all cases, make the case clear now when you are all of good will.

If X < Y

I'd no bet for an increase of the house value in your situation. If the price increase up to the point where X equals Y in the future (something you will not know when it happens), you'll be back to first case above, but their situation will have changed and they might not have the right mindset anymore, and it'll be too late to fix things.

If the price does not increase, you are taking the risk of loosing more of your payment (mortgages, repairs, taxes...) because at some point in the future they'll want to get their money back. In that situation, it'll be very hard to be fair. The bank does not care who paid the mortgage, so legally it's like if you'd given them free money by paying their part meanwhile. They will never account for your gift, and they'll ask 50% of the house.

So, in that case, sell now and buy something else with your money, not theirs.