There are numerous advantages to friends, family members and unmarried couples teaming up to buy a home. They increase their buying power and don’t have to face covering mortgage payments on their own. However, things sometimes happen that require one party to back out of the arrangement.
The key to getting such mortgages right is to lay the groundwork early, said J.C. de Ona, president of Centennial Bank, Miami-Dade County. That requires having difficult conversations about situations that can arise, whether that means the end of a relationship, a falling-out between friends, financial problems for one partner or a death.
“When you’re getting a mortgage like this, the key is to have things right going in,” de Ona said. “It’s not always the case, but that’s the key. You want to avoid any issues and the way you do that is properly thinking and setting up the ownership structure going in.”
Ownership options for Florida residents include joint tenancy and tenancy in common arrangements. In the former, each party in the purchase has an equal ownership stake. If something happens to one partner, the other takes full ownership. Tenancy in common situations are more complicated because heirs or next of kin may become involved, further entangling the question of ownership.
In Florida, parties holding a tenancy in common can apply a right of survivorship, which makes it easier to unwind such mortgages.
“If something were to happen and you had to unwind it for one reason or another, depending on the reason, this makes that easy because it just transfers ownership to the other individual,” de Ona said. “You’re specifying ownership going in. So, heirs would get that ownership, that same probate upon death or if you’re going to sell the property, your percentage is already there. You own 50 percent or 70 percent or 60 percent.”
The unwinding process depends greatly on which party in the purchase takes title. If the partners establish a limited liability corporation, it will dictate how the mortgage is unwound.
“If it’s sold or if it gets a little complicated when you have one partner who wants to get out, you can have your part of the ownership purchased and sell that piece,” de Ona said. “Or you can both sell. That’s up to the partnership at that point. But there are different scenarios, depending how you took title.”