What happens if you part ways or if one of you dies? The law often does not provide clarity for
such situations. But if you both sign a
mortgage note you will both be liable for the full amount of the loan until it
is paid in full, often thirty years from now.
Let’s imagine the worst case scenario. Fast forward five years and your situation
could be vastly different. Your
relationship has soured and you want out of this situation. Your partner is uncooperative about selling
the property, refuses to move out and cannot afford to pay the monthly expenses
associated with the property on their own. All conversations with your partner have become
emotionally charged and heated. What is
your liability? What is your
recourse?
Your legal exposure can be significant, especially
considering that in most areas buying a home involves borrowing several hundred
thousand dollars. If the mortgage goes
into default the lender will eventually foreclose, seriously jeopardizing your
credit and leaving you subject to a possible deficiency judgment for the
difference between the value of the property and the debt when the foreclosure occurs. Any investment you made in the property is at
risk of being lost, as foreclosure actions can quickly eat up some or all of
your equity. You may also have personal
responsibility for other expenses associated with the property such as
association fees, taxes and utilities that are in your name.
What are your rights?
Can you force your partner to move out?
Can you force them to contribute monthly to the carrying costs? Only with a court order. And what’s the legal authority that allows
courts to enter such orders? That is
where it gets tricky. Co-habitation
cases, as they are often called, are a newly evolving area of the law. There is not a lot of legal precedent for
these types of cases, therefore, not a lot of certainty exists in terms of the
possible outcome. There may also be unique
tax consequences for unmarried couples. One
thing you will know from the outset is that it will be expensive, with the
legal costs of each side capable of escalating quickly into tens of thousands
of dollars.
Co-habitation cases are not cookie-cutter court actions
similar to no-fault divorce actions where judges routinely divide up a couples’
property according to well-established legal principals. Co-habitation cases are civil actions, each with
their own unique factual claims, such as who put in how much, who paid the
mortgage, who paid for improvements, what was the “deal” at the outset. And while the law will continue to evolve in
this area, it may take decades to become somewhat uniform and the specific
circumstances of each case will still be subject to dispute and interpretation. So how do you protect yourself now, before
you commit? You invest in a pound of
prevention. Consult with an attorney who
has experience in drafting co-tenancy agreements. Have a contract drawn up which recites in
detail how the deposit is being paid, how closing costs are being paid and how
the monthly expenses going forward are to be paid. Address how improvements you make to the
property will be managed. Consider how
you will hold title, as tenants in common so that your respective estates will
take your share if you pass, or as joint tenants with rights of
survivorship. If one or both of you have
children from a prior relationship you may feel conflicted about allowing what
may be your most significant asset to go to your current partner. You can remedy this by each taking out a life
insurance policy on one another that would let you “buy out” the other persons
estate if one of you should pass. The agreement
should address what happens if one person moves out, including how the monthly
carrying costs should be paid and whether either partner has a right to buy the
other out and, if so, how the buy-out price will be calculated and paid.
If you are uncomfortable raising this suggestion with your
partner consider the fact that a co-tenancy agreement can benefit both
parties. A home is a serious investment
with many responsibilities. You owe it to each other to handle it in a
responsible way. Think about it, you
would not let your automobile insurance lapse, risk losing your health
insurance benefits or gamble with your retirement fund. Why?
Because you know the possible cost for taking such risks could be more
than you can afford to absorb. So why take
unnecessary risks when buying a home?
For most people housing is their largest recurring expense
and sharing that expense with your partner can be financially beneficial. Co-ownership may be the best choice for you,
but it’s important that you and your partner discuss your expectations and,
ideally, reduce it to writing with the assistance of legal counsel. It’s always best to be informed, and whenever
possible, prepared. You cannot provide
for every possibility, but at least you can address the most obvious sources of
potential conflict. Address this issue
before closing and you can move on to more pleasant topics, such as what color
to paint the kitchen.
Questions? Comments? Contact Attorney Bridget Gallagher at 860-659-0700 or bgallagher@bpslawyers.com.
