Buying a house when unmarried by Elizabeth K. Cassidy

It is becoming more and more common for people who are not married to buy real estate together.  While such an arrangement offers benefits such as shared housing costs, there are several potential pitfalls one should consider prior to purchasing real property with one other than a spouse.

      

      1.       How are bills going to be paid? 

Assuming there is a mortgage, one must keep in mind that buying property jointly has the potential to put you on the hook for significant expenses.  If both parties sign the note and mortgage, both parties are jointly and severally liable for the home loan.  This means that if one party cannot make his or her contribution to the mortgage payment, the remaining party is liable for the payment.  Even if you do not sign the note, most lenders require that all parties to a deed sign the mortgage.  So even though you are not responsible for the debt, if your housemate fails to pay the mortgage, the bank can foreclose on the house and kick you out.  Do you trust the person you are buying with to not leave you high and dry?

In addition to the mortgage, the parties should consider how the household bills are to be paid.  Will each person contribute a set percentage to a joint household account?  Will someone be primarily responsible for the bills and be reimbursed by other parties?  Will the bills be divided up amongst the parties?  I.e. John pays the electric bill while Jane pays the cable bill.  What happens if one party loses his or her job?  In addition, you should consult with your tax adviser as to how to handle deductible household expenses.  Who gets to deduct what?  You both cannot deduct the same amounts.  Although unromantic, whatever arrangement you settle on should be in writing.

     2.       How is title held?

In New York, there are a couple of different ways to hold title to real property.  Spouses typically own property as husband and wife with rights of survivorship.  When one party dies, the surviving party automatically gets full ownership of the property.  There is no need for Court intervention, probate or even a will.  Unmarried individuals can own property either as “tenants in common” or as “joint tenants.”  As tenants in common each owner owns a percentage of the real property.  For example, if John and Jane own 123 Main Street as tenants in common, John would own 50% and Jane would own 50%.  Each could sell or bequeath their share as they saw fit.  Jane would not automatically receive John’s share unless he bequeathed it to her in a will or she was otherwise entitled to it under New York intestacy laws.  In contrast, if John and Jane own as joint tenants, they each have full ownership of the property.  Neither party could share or bequeath their interest absent consent of the other party or Court intervention in the form of a partition action.  Jane would automatically inherit John’s share as a joint tenant. 

     3.       What happens when there are broken hearts?

Parties should have a written agreement discussing how the real property and shared personal property will be divided in the event that the couple breaks up.  Are you going to liquidate the real property and personal property and split the proceeds according to set percentages?  Is one party going to buy the other out?  Can that party afford to carry the mortgage by themselves?  Again, this is an unromantic prospect but having an agreement in place from day one will prevent significant agony should there be a break up. If you truly love each other, you will have this difficult conversation in advance.

     4.       What happens when you sell the house?

Again, prior to buying a house, parties should have an agreement concerning how proceeds (or worse debt) is to be split when the house is sold.  Does one party contribute more than the other?  Did one party put up the down payment? 

Parties interested in buying a house together might also consider a landlord tenant relationship.  This is particularly true if only one party is needed to finance the transaction.  For example, Jane has sufficient income to support a mortgage for the house.  If she buys the house in her name alone, she can enter into a “lease” arrangement with John for an amount to assist with house hold expenses.  If they break up, it is much easier for both parties to walk away.  There is no question as to who is entitled to the equity in the house.  If Jane wishes for John to inherit the home, she can easily make the necessary arrangements in her estate plan. 

Consultation with a lawyer to thoughtfully plan for these potential pitfalls can result in a smooth and positive joint ownership arrangement.