Buying a House With Someone
There are several benefits to buying a house with another person. Sharing the costs of purchasing a home may be the only way you can afford to become a homeowner. Co-ownership can help cover the costs of maintenance and upkeep. Some couples buy a house together with plans to later get married. Buying a property with another person can also be a great investment opportunity.
But there are challenges to owning a home with someone else. It is important to be aware of the restrictions of co-ownership to avoid financial and legal problems down the road. If you have questions about purchasing a home with another person, make sure you talk to an experienced real estate lawyer.
In this article, we include helpful information about types of ownership interests, co-ownership agreements, and selling or transferring ownership interests.
Types of Ownership Interests
A deed is a formal written document that conveys title to a property when it is transferred to a new owner. When there is only one buyer, the buyer's name will be on the deed as the sole owner. When purchasing property with more than one person, the buyers have to take a shared ownership interest in the property. Types of homeownership for multiple buyers include:
- Tenants in common
- Joint tenants with right of survivorship
- Tenants by entirety
While these are legal terms, don't be intimidated by them. The concepts are actually pretty simple.
Tenants in Common
With a tenancy in common (TIC), each buyer owns a share of the same property. Buyers jointly determine their percentage of ownership, which should be reflected in the title. Co-owners can have an equal share (50/50) or an unequal share.
Tenants in common have a right to sell (or convey) their share of ownership as they see fit, even if the other owners disagree. However, a tenant in common cannot sell more than their share in the property. When a tenant in common dies, their interest in the property pass to their heirs. If you are a co-owner, you could find yourself sharing a property with strangers.
Joint Tenants With Right of Survivorship
With a joint tenancy with the right of survivorship (JTWROS) deed, each owner has an equal interest; 50/50 for two owners or 1/3rd interest for three owners.
With joint tenancy, an ownership interest passes to the surviving owners after one owner dies. The remaining owners will take the deceased owner's interests equally. A co-owner in a joint tenancy cannot pass their property interest to their heirs through inheritance. Transfer of ownership to the co-owners occurs automatically upon death, which avoids the property having to go through probate.
Joint tenancy with a right of survivorship is most common between close family members. The grantee clause of the deed must clearly state "joint tenants with right of survivorship."
Tenants by the Entirety
Married couples may take ownership as tenants by the entirety (TBE), a form of joint tenancy with the right of survivorship. Each partner has equal ownership of the property but it's not 50/50. Each partner owns 100%. Only 25 states allow this type of ownership interest.
This means that if one partner has creditors who want to seize the property in payment of a debt, they can't because the property also belongs 100% to the other partner. It could only be seized by creditors if both partners were party to the same debt (note that many types of debt are shared between married couples, however).
If one partner dies, the property passes immediately to the other party without going through probate.
Importance of a Co-Ownership Agreement
Homeownership is a significant financial investment. It is important for co-owners to have a clear understanding of how they will use the property. Disagreements can put a strain on the relationship between owners. A clearly written agreement can lay out the rights and responsibilities of each owner and avoid future legal trouble.
When drafting a co-ownership agreement, potential owners should talk about how they expect to use the property and what they expect from other owners. The agreement can also provide options for what to do in the event of a disagreement.
If you are concerned about an owner selling their interest to someone else, you may include a right of first refusal clause in the agreement. This gives you an opportunity to buy out the seller's interest before it can be sold to a third party.
You may also consider adding a "forced sale" clause into your property ownership agreement. If one shareholder is unhappy, this clause can force one (or more) of the shareholders to sell their shares of the property on the conditions defined in the agreement.
Ongoing Expenses and Financial Obligations
It takes a lot of money to take care of a home. If the buyers took out a loan on a property, they have to make mortgage payments or else the bank could take ownership of the property. Other ongoing expenses for a home include property taxes, maintenance costs, utilities, and insurance.
The buyers' co-ownership agreement should cover the property expenses and financial obligations, including which owners are responsible for making which payments and based on what percentage. Some owners just decide to split all expenses equally. Other owners allocate separate expenses to separate owners, based on ownership interest or who is living in the house.
Selling, or Conveying, Your Ownership Interests
Owners have the right to sell or transfer (convey) their interest in a property during their lifetime. However, selling part-ownership in a house can be difficult because a house is not easily divisible. As a joint owner, you can only transfer your interest in the property. All co-owners have to be in agreement to sell the entire property.
Property owners may force the sale of the property, which is called a "partition." Owners in a tenancy in common or joint tenancy with the right of survivorship can petition the court to partition the property. If the property is easily divisible, like an open plot of land or a duplex, a joint owner may be able to obtain a "partition in kind" to divide the property.
Alternatively, a "partition by sale" forces the sale of the property, even if the other owners do not want to sell their share. After a forced sale, the court will distribute the profits from the sale based on each former owner's ownership share.
Get Legal Advice for Buying a Home With Someone Else
Buying a house with other people can present some challenges. With so much money tied up in a property purchase, it is a good idea to consult an attorney about joint ownership of a home. Talk to a local real estate attorney before you buy a property with other owners.
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