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Significant Others Need To Think About Their Legal Status When Buying A Home
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A young relative called over the long weekend. He had just made an offer
on a house and wanted advice about inspections and other details. We had been
in e-mail touch for several weeks as he worked through his mortgage pre-approval,
structured the offer and generally obsessed over a very important decision. But
I had never thought to ask a critical question of my own: "Are you and Leslie
- his girlfriend - buying this house together?"
They would, he responded, both be on the deed, but only Eric
would sign the note; as a retired Marine it would be a VA guaranteed
loan.
Alarm bells went off everywhere. It was a touchy subject and it is tough to
burst bubbles at 10 a.m. on a Sunday morning. Eric and Leslie are no doubt convinced
they will be together forever as are most married couples, 50 percent of whom
will, at some point, no longer be. But there is a very big difference between
the legally married and likely to be divorced and those in Eric and Leslie's
position. Significant others (SOs) lack a ton of legal protections that are
automatically available to the married.
I laid out a few possible scenarios on the phone, the least uncomfortable I
could come up with on the spur of the moment, and then started researching the
subject. The dangers inherent in buying property with a significant
other are - okay - significant. And worse than I thought.
This is not to say that unmarried couples should not own a home. Financially,
where two people are sharing rent and paying taxes, it is a financial no-brainer.
Sometimes people are ready to own but not ready to wed. It could be that an
unresolved previous marriage precludes wedlock, and of course, in 49 states
same sex couples are denied the legal protections available through that institution.
In each of these situations buying a home may be exactly the right thing to
do - financially and/or emotionally - but still may be darn dangerous
legally. At its heart (and it is probably better in this case to ignore the
heart) buying a home is a financial and legal transaction and should be approached
with clear and open eyes. If the principals are not protected by the legal cover
of marriage, it should be approached with clear and open eyes and the advice
of an attorney.
Among the scenarios I gingerly laid out for Eric.
- With the deed in both names, if Leslie should die Eric could end up owning
a home with her heirs - her parents or siblings - while being totally responsible
for the mortgage;
- If the loan is solely in Eric's name and he should die this might not only
endanger Leslie's partial ownership of the home by triggering the "due
on sale" clause in the mortgage but tie up his estate which would still
be obligated to pay the mortgage without the right to sell more than half
the house.
- With Leslie not a participant in the mortgage and because as SOs they have
to file separate tax returns, Leslie would be unable to claim a part of the
homeowner's deduction for mortgage interest or property taxes.
They are non-traditional students (i.e. older than others in their classes)
and earning low wages. The available deductions may well be more than Eric's
tax obligation could absorb and these deductions would thus go to waste.
Since they are young and in love and I want to keep their trust and friendship
I didn't even mention the biggest danger to their real estate dream. In
a year or two they might split and if they do disentangling their real estate
relationship could be more complicated and ugly than anything they might encounter
in dissolving a marriage.
What if they did break up and both wanted to keep the house? There have been
a couple of movies based on this situation and while it might be funny in fiction
it is likely to be costly and emotionally draining in real life.
If only one wants the house how does that work? Can one SO force the other
to sell or, alternatively, be held hostage by his or her refusal to do so?
What if the pair had made unequal contributions to equity?
Maybe Leslie provided the bulk of the down payment or owned the good credit
that made the purchase possible but Eric contributed dozens of hours to upgrading
or maintaining the home or had the income necessary to carry the monthly payments.
Somebody has to decide how to value the contributions and if it is the courts,
the costs of the conclusion may be more than the equity is worth.
Eric was very quiet at the end of our talk. Perhaps he thinking quickie wedding.
More likely he was deciding never to call this particular relative again. I
hope he isn't thinking about giving up his dream of home ownership. I have seen
the pictures and the house is lovely and probably perfect for both Eric and
his SO. But, as I said before, I then began to do some research on the subject
and found even more uncomfortable scenarios but also some helpful information.
We will go there next.
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Comments (5)
| My boyfriend & I of 6 years, just purchased a house together. He has cold feet about marriage, but loves me and want to be with me forever and says this is a great investment for our future. I agree and think a marriage would be a great investment as well. But, my question is: what are each of our legal right as an unmarried couple toward this home? What would happen if God forbid we were to break up? Who is responsible for the home and financing? |
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| Above Posted By:
Anonymous
| Sun, 15 Apr 2007 21:59:14 EST |
| Well, I thought I had it all figured out. My girlfriend just moved in and, as a gesture of committment to our relationship, I wanted to gift her part ownership of my condo and devise an arrangement where she would increasingly gain ownership as she made payments toward the mortgage. This article made it clear there are many other angles to this agreement that I need to think and learn about. Anyone know a good RE lawyer? |
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| Above Posted By:
Joshua
| Thu, 7 Dec 2006 09:07:05 EST |
| As a gay attorney in Westchester County, I have negotiated many home purchases for SOs. I always put both parties on both the deed and the note, avoiding triggering the "due on sale" at the first death. To replicate the protections afforded by Tenancy by the Entirety available to married people, my clients usually take title as Joint Tenants, automatically inheriting the deceased partner's interest and avoiding estate problems. Joint Tenants must agree on a sale, one cannot sell his interest. |
|
| Above Posted By:
JD Rawcliffe
| Wed, 6 Dec 2006 23:54:59 EST |
| Good food for thought!
As an experienced Realtor I have seen buyers put only one person on the note and yet had 2 on the deed-I have always thought this was a bad idea and now I can show several different instances instead of the obvious (you 2 might not make it) scenario. |
|
| Above Posted By:
angela barney
| Wed, 6 Dec 2006 14:21:27 EST |
| Thank you so much for this timely topic. As a gay woman about to purchase a home with my partner of three years, this is a very real issue for us right now. Unfortunately, we don't have the option of marriage, so we're trying to do everything we can to protect ourselves legally. If we could just get married, it would be a lot easier, but lawmakers are too bent on protecting the "institution" of marriage. With a 50% divorce rate, however, I'm not really sure what they're protecting. ,0( |
|
| Above Posted By:
WendyInDC
| Tue, 5 Dec 2006 15:57:55 EST |
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