Note: the first part of this series can be found athttp://ohiolegalnotes.blogspot.com/2015/02/home-ownership-for-unmarried-couples.html
In the first installment of this series, we discussed ways we help unmarried couples enjoy the same sorts of rights as married couples with respect to real estate. Now, we’ll examine some of the issues that come up, usually when the relationship is at or near its end.
When you bought the house together
Assuming both of you have sufficient good credit, there’s no reason the two of you didn’t buy a house together and sign the loan together, just like a married couple. There are two documents you should look at to determine what your rights and obligations are: your deed (seehttp://ohiolegalnotes.blogspot.com/2015/01/do-you-know-who-owns-your-house.html), and the promissory note (“note” for short), which is the document which begins with the words “I promise to pay . . ..” The deed will tell you who owns the house, and the note will tell you who has to pay for it.
Everybody who signs a promissory note to a bank is jointly and severally liable to make the payments. This means if you are one of the people who signed the note, the bank can require you to pay the entire obligation, regardless of whether the two of you are still together or whether you still live in the house. There is no “rule of halvsies” — your lender is not obligated to accept half of the payment from either one of you. If the payments aren’t made in full, regardless of what your understanding is with each other, your credit will be severely damaged.
We still see people who have quitclaimed their interest in the property (“signed over the deed”) to a former significant other at the end of the relationship, thinking that by taking their name off of the title they are no longer responsible to pay for it. That’s not true and it’s the worst thing you can do. Once you give up your interest in the house, you also give up a lot of leverage you’ll need to protect any equity you’ve built up and your credit. Stay in title and make sure the payments continue to be made — once the house is refinanced or sold, that’s the time when it’s ok to sign a deed.
If one of you is moving into a house the other already owns.
Again, it’s important to check the deed to see whose names are on it. Before you make significant investments in your partner’s home, you’ll want to be clear whether former spouses or others still have a record interest in the property. If they are, it might be a simple oversight that we can help correct; however, it might also indicate that the other people on the deed still have rights in the property.
If you are planning to make a significant up-front investment in your partner’s house — for example, to make repairs or to catch up payments on a mortgage — we can do either a lien search (to reveal record liens on the property from the time your partner acquired title) or a full title examination (to reveal anything of record affecting marketable title). A little planning now can avoid a lot of aggravation — and potentially save you a lot of money — down the road.
Assuming that you are moving in together for the long haul and both of you will be contributing financially to the household, it’s a good idea to have a conversation about what each of your expectations are. If you agree on how much the person moving in is contributing and that you want that person’s financial investment to be protected, there are a couple ways to approach the issue.
One approach is to enter into a roommate agreement. We aren’t suggesting that the host needs to be like Sheldon Cooper on The Big Bang Theory, but a basic understanding of what you each expect to pay for (and on the flip side, get reimbursed for if things don’t end well) might save the two of you a lot of aggravation later on.
Another option is for the host to sign the equivalent of an open-ended line of credit agreement and record a mortgage to protect whatever the party moving in pays towards the household expenses. Like a reverse mortgage, the balance would increase as the person moving in makes contributions. The real beauty of this planning technique is that the person moving in is only secured to the extent you have agreed, and only to the extent they have actually contributed.
The mortgage option is not only helpful in protecting your interests between each other, it protects the investment a person moving in makes from other creditors of the homeowner. For example, if the person moving in has contributed $10,000 which is secured by this mortgage, it would have priority over a judgment later filed against the homeowner.
This option also protects the investment if the homeowner dies and doesn’t provide for the person moving in by will, transfer on death affidavit or other means. While the homeowner’s named heirs may inherit the home, it will remain subject to the repayment of the balance due — an amount that could provide a nice down payment somewhere else should the other person have to move.
Whether or not to add your significant other to your deed.
It might seem easier to just add your new significant other’s name to the deed than to take the steps outlined above. However, here are some things to think about before you do:
- If there’s already a mortgage on the house, most mortgages contain a due on sale clause, which provides that if the homeowner conveys any interest in the property, the lender has the right to declare a default and foreclose. Ask first, and if your lender won’t consent, you can always refinance the loan into both of your names, recording a deed to put the home in both of your names at the same time.
- Think carefully about how you want to hold title: as tenants in common or in survivorship (for the difference, see my previous article athttp://ohiolegalnotes.blogspot.com/2015/01/do-you-know-who-owns-your-house.html).
- Whatever interest you give to your significant other is a completed gift effective when you record the deed — regardless of whether the relationship works out down the road. If the new deed is simply from you to the two of you, you’ve given away half of your house, effective immediately, no strings attached.
If the significant other doesn’t bring anything to the table financially, adding them to the deed might also add their financial problems. Consider a transfer on death affidavit to make sure they have a place to live after you die, because a transfer on death affidavit doesn’t create any present interest in the property and you can change your mind later if things don’t work out.
It’s never too late to agree.
While it’s usually much easier to clarify your understandings at the outset, there’s nothing that says the two of you can’t come to an agreement later on — even years after moving in, and even if the relationship is in decline or over.
Who might have the upper hand in the event of a dispute is going to depend on a lot of factors, such as how much the person who moved in can prove they invested and whatever evidence a person can produce to prove that there was an understanding that those amounts would be repaid if things don’t work out.
Of course, whenever a lawyers says “it depends,” that gets expensive. The more money that is in dispute, the higher the stakes are and the more sense it makes for the parties to come to an agreement and move on.