Joint Occupation or Ownership of Flats and Houses - Problems
ARTICLES AND FAQS
Some of the things people ask and problems they have, with our comments and answers.
We've set out below examples of what can happen and, what to do to try to avoid them. In some cases there aren't any easy legal answers - it is about relationships between people.
There is a whole body of law about breakdown of marriages and what happens to property involved in the marriage in that event. We do not deal with matrimonial law so we have not gone into any of that. There are no special rules at the moment to establish rights to property other than for married people and those in civil partnerships. It is simply a matter of establishing what the people concerned agreed, and if this isn't clear then the courts have to try to work out from what they did and said, what they would have agreed had they thought about it!
So here are the examples:
John and Mary buy a house to live together. Mary has a lump sum to put in towards the price, but doesn't have a job. John applies for a mortgage in his name because he is the only one working and they find out later that means that the house has to be owned solely by him. Later on the relationship breaks down and Mary wants her money back. John says the house is entirely his and won't raise the money to repay what she put in.
It is a common misunderstanding that only a person who has an income can be a borrower on a mortgage. Mary could have been a joint borrower and a joint owner and then she would have been in a stronger position.
If there is no agreement to prove that Mary provided the lump sum and it was intended she should get it back if the relationship broke down, then it would cost her a lot to go to court.
Also, it looks as if they didn't really think things through. Why didn't Mary ask whether there was some way she could be a joint owner of the house? Didn't they think about having some form of agreement?
Mike and Jo are not married and buy a house together. They have a joint mortgage and the house is in joint names. Mike has put in a big lump sum towards the price and they both are working and contributing equally towards the mortgage. There is nothing written down about what each is entitled to. Mike leaves her for someone else and stops paying the mortgage. He wants to be freed from his mortgage obligations so he can buy a place on a mortgage with his new partner in the property and get his lump sum out, but Jo isn't earning enough on her own to raise a further loan to buy him out.
In this case, as long as as Jo is prepared to sell up then this is the best way forward. The house has gone down a little in value so there isn't enough to pay back Mike the amount he put in so he will have to put up with whatever is left over at the end. Jo tells him she isn't desperate to sell, whereas he is, because his new partner is pushing him to get on with their new purchase and this can't proceed while he is still on the present mortgage. In this case it wouldn't have made a lot of difference if there had been an agreement that said that Mike got his lump sum back out of the sale proceeds because the realities of their respective negotiating positions were more important in the end. Of course, when they bought they were not to know how things would turn out, an agreement between them would still have been advisable.
Rita and Megan were university friends and bought a flat together for £120,000. Rita was still studying but her grandfather left her a lump sum which provided half the cost of the flat. The rest is paid for by a mortgage of £60,000, which, whilst in joint names, is actually entirely paid by Megan, who is working. They draw up their own agreement that says that if the flat is sold the "net proceeds" should be divided equally between them but they don't define what "net proceeds" are. Rita gets a job in another part of the country and either wants the flat sold or for Megan to buy her out. Flat is now worth £130,000. Estate agents and legal fees of sale would be £3,000. £59,000 is owed on the mortgage. Megan says "net proceeds" means £130,000 less (£59,000 + £3,000) = £68,000 and therefore Rita's share is £34,000 and she will buy her out for that amount, which is the most she can raise by way of further advance on the mortgage.. Rita says that the "net proceeds" doesn't take into account the mortgage and the calculation should be £130,000 - £3,000 = £127,000 and her entitlement is half of that at £63.500.
They should have had a clearer agreement that defined "net proceeds". This simply involved them thinking through the implications. It would have been fair for Rita to get her £63,500 in the case above, but if they had thought about, it they might have realised that if one was asked to buy the other out she would have to be earning enough to get a further loan to do so.
They could have tried to deal with the eventuality in the agreement, perhaps giving each other a longer period to find the money and then Rita would have known from the start that if she got a job somewhere else, she would have to wait for her money. Alternatively they might have decided that, because it would tie them down too much, buying together just wouldn't work.
Matt and Fiona aren't married and bought a flat together. Fiona has saved the 10% deposit, but Matt has no cash to contribute. To start with they share paying the mortgage equally between them but Matt has a drink problem and keeps having time off work as a result and ends up losing his job. Fiona wants him to stop drinking and get another job but he just lounges around and won't face up to things. Fiona eventually walks out and wants to sell the flat. Matt won't cooperate and is abusive when estate agents come round with potential buyers. He says he won't sign any legal documents in relation to the sale.
Once someone is behaving irrationally, all the agreements on earth are not going to make much difference. Fiona may well have to find the money to seek a court order for the sale of the flat and for him to give up possession to enable the sale to proceed. She doesn't see why she should keep up the mortgage payments (including the share he previously paid) simply to allow him to have somewhere to live. If she stops paying the mortgage she will get a bad credit record as well as him. She had some idea he had a drink problem before they bought, so had she thought it all through a bit more she might not have agreed to buy with him and might have reconsidered their relationship and saved herself a lot of money and stress.
Jack and Doris are a married couple in their early 70s. They want to buy their Council House from the Council but as they are pensioners they cannot get a mortgage. Their grown up son, Peter, lives with them. The three of them buy together with the aid of a mortgage based on Peter's income. A few years later Peter meets someone and they want to buy a place together. To do this Peter needs to come off the present mortgage, but the older couple can't afford to buy him out.
Did the older couple realise they were tying down their son financially for the future? Had Peter really weighed the implications for him? They might have been better not buying in the first place.
Rob and Emma bought a flat 5 years ago for £165,000. Emma put in £40,000, Rob £5,000 and they took a mortgage for £120,000. Over the five year period they each paid half of the mortgage payments which total £45,000 over that period and they now owe £107,000. They have now split up. Emma wants to move out and get back her share but they can't agree how much that should be. They have nothing in writing about how the money should be split.
Emma thinks the flat is worth £145,000 and says that they agreed to share any surplus equally over and above the £45,000 they put in together. Therefore, she says, they should bear the loss equally, and as there is only £38,000 equity (the difference between £145,000 and the amount left on the mortgage, £107,000, the "loss" is £7,000, so she is entitled to £36,500 and he £1,500.
Rob has a different take on it. He thinks she is being optimistic about the likely sale value of the flat. He thinks it would sell for £135,000 and the costs of selling it should be taken off before any division is made. He reckons these costs to be about £3,000, so on that reckoning there is £135,000 - £3,000 - £107,000 = £25,000 to split between them. He thinks they agreed that the mortgage payment should be taken into account any any money left after the mortgage had been paid off should be split in ratio of the lump sums plus the mortgage payments each made. So he says he paid £22,500 (half mortgage payments) + £5,000 = £27,500 and she paid £22,500 + £40,000 = £62,500, so the £25,000 should be divided 27,500 : 62,500 which means he is entitled to £7,639 and she should get £17,361. He will struggle to get a further advance on the mortgage to buy her out to take the total loan even up to 90%, which on his reckoning is £121,500, so he offers her the difference between the present amount owed and that 90% which is £14,500.
Emma thinks that's totally unreasonable and wants the place sold, but Rob won't sign anything to allow a sale to go through.
This is a classic case where a agreement or trust deed setting out how their shares should be calculated would have helped a lot. Here a court would have to try to establish what the two of them agreed or would have agreed, from their words and actions, and that is not easy. A court case would be very expensive, because a lot of time would be spent examining and cross examining both of them as to what each said and did to seek to prove that one version of the alleged "agreement" about the shares was the right one.
Each of them will have to factor in the costs of arguing the matter in court. If Emma wants the place sold then she may have to bite the bullet and take the initiative. However, even if the court accepts her version of the figures and what was "agreed" and orders her costs to be paid out of Rob's share, as she says his share is only £1,500 this is not going to be anywhere near the costs involved, so Emma is in a weak tactical position. Had they had an agreement the only argument would have been about the actual figures because they would linked what the flat would sell for. It would then have been easier to reach a compromise agreement as to how much should be paid, because the uncertainties would be significantly reduced if it did go to court.
Examples of real problems that have occurred: http://forums.moneysavingexpert.com/showthread.php?p=41183832#post41183832
http://www.houseweb.com/forum/showthread.php?p=7203#post7203
http://forums.moneysavingexpert.com/showthread.php?t=3620457
http://forums.moneysavingexpert.com/showthread.php?t=3633127
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Conveyancing - Joint ownership Horror Stories.
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