Whether it is a suburban home with a rap-around porch or a high-rise condo in the middle of the city, everyone dreams of one day owning a home. It has become very difficult to own a home in today’s landscape, and there may be many obstacles that keep getting in your way, such as finances or legal stumbling blocks. Luckily, there is hope in this intimidating transaction.
What was originally exclusive to married or committed couples, many people are finding out that it easier to own a home when you do it with a relative or friend. Sharing ownership allows people to purchase a home that they normally would not have been able to buy alone. You can finally reach your dreams of home ownership, but it must be done carefully. Choosing the wrong partner could lead to years of frustration with finances, legal issues and potentially severed relationships.
When purchasing a home, you receive “title,” which is then recorded on a “deed.” The deed records how the co-owners are sharing the home and all the details that come along with it. The deed is very important because it will dictate how you enjoy your property, and eventually how you will part ways with your co-owner if you decide to do so.
(Married couples may take title with a “tenancy by the entirety” or as “community property.”)
A Tenancy in Common (TIC) can be divided into any apportionment of shares. You and the co-buyer can own unequal shares depending on how much each contributes to the purchase of the home. That being said, each buyer owns an undivided interest in the property meaning they have the right to enjoy the entire property. If one person wanted to sell their interest in the property they could not simply divide the house down the middle and sell that portion of the house, but instead would sell their individual share in the property. Additionally, if one of the co-owners dies, their share will passed on to their beneficiaries stated in their will. If the co-owners decide to rent out their property, each co-owner earns rental-income equal to their share in the property. TIC is by far the most common way for unrelated people to hold title together.
A joint tenancy with the right of survivorship (JTWROS) must have an equal share in the property. If one of the co-owners dies, their share passes to the other co-owners. For example, if you bought a house with two other people, you each own a 1/3 share of the property. If one of the co-owners dies, the surviving co-owners now own a 1/2 share in the property automatically, despite what the deceased co-owner wrote in his or her will. JTWROS serves as a way to avoid probate law. Other than that, each owner enjoys the same rights they would have in a TIC regarding the undivided share, sale, and rental income.
In order for this all to take effect, you and your co-owner must sign a co-ownership agreement.
The most difficult aspect of drafting a co-ownership agreement is anticipating issues in the future while everything is running smoothly in the present. Most people enter into partnerships with a good relationship; after-all you are going to be living with the person. This may lead to hasty decisions with the idea that you can work out all of your unforeseen issues when they arise. However, with loads of your time and money at stake, it important to settle those disagreements before they become serious issues.
The agreement can cover whatever you would like, but they should at least address the topics below.
Deciding what percentage each person will own is vital and is usually dependent on how much money each person is willing to invest. In a tenancy in common (TIC) it does not need to be a 50/50 split or even divided based on what each person contributes. For instance, one co-owner can increase their share in the property if they decide to manage any upkeep or contribute more to the down payment.
In a joint tenancy with the right of survivorship, you would normally divide your interests into equal shares.
Expenses in home-ownership can include mortgage payments, insurance premiums, repairs, property taxes, utilities, and any other costs to maintain the home. You and your co-owners can decide how to allocate these expenses in your co-ownership agreement. Expenses are typically allocated based on the ownership percentage of each co-owner.
Getting out of a co-ownership agreement may not always be simple. Neither owner wants the other to sell to just any person they can find that is willing to pay. Despite that, in either a TIC or JTWROS a co-owner can do exactly that. Neither type of agreement requires prior approval from the other co-owners.
A way around this right is to put a provision in the co-ownership agreement that gives the other co-owners right of first refusal to purchase the interest the other co-owner wants to sell. When introducing this provision in the agreement you must consider the following three questions:
How to assess the property value for the buyout?
What to do if the remaining co-owners cannot afford the buy-out?
Does the selling co-owner have to accept the buy-out?
Sharing ownership in a home is a great way to buy a house while limiting the burden of debt. Nonetheless, it is very important that you choose your co-owners carefully to limit additional burdens in the future.
A tenancy by the entirety (TBE) only applies to married couples. Similar to a joint tenancy with the right of survivorship, TBE also has the right of survivorship meaning that the share of one owner automatically passes to the other upon death. Additionally, neither co-owner can defeat the right of survivorship by selling their share to a third party. A major benefit of TBE is that creditors of only one spouse cannot touch the property they co-own with their spouse. Again, co-owners must be married to have this type of co-ownership.
To learn more about estate planning, contact our law office at Antonoplos & Associates, or call 202-803-5676 to speak with one of our experienced real estate attorneys. Our estate planning attorneys are able to provide you with the knowledge and guidance you need. Contact us today. 202-803-5676.