Don’t Forget About the Lender!
Individuals who co-own real property often do so in a variety of different arrangements. They may own community property as a married couple. They may have purchased real estate as tenants in common with siblings or friends, with each retaining their independent right to sell their own interest. They may own real property as joint tenants with a right of survivorship, where the death of one owner transfers his or her interest to the other co-owner.
Indeed, these parties may also purchase properties together under unique arrangements and understandings, such as where one co-purchaser simply puts in a down payment to assist the person intended to “truly” own the property, or where one person has great credit, and therefore becomes an owner for purposes of helping another person get a mortgage. These arrangements often happen between family members.
Of course, at the other end of property ownership, individuals who co-own property may disentangle from each other in a variety of contexts. For example, a court may award property in a divorce proceeding to one spouse, requiring the other spouse to convey over his or her interest in the real property. By way of another example, two co-owners of a property may engage in a buyout, with one person buying out the interest of the other and conveying a property interest accordingly.
These various scenarios have some similar and differing considerations for current and would-be property owners to reflect upon, but one party to many of these transactions sometimes gets forgotten in the hustle and bustle of sorting through ownership issues: the lender.
Individuals entering property ownership sometimes do not understand the ramifications of the loan documents that they execute. For example, typically only the borrower(s) (who may or may not be all the owners) will have to sign a Promissory Note, obligating the borrower(s) to pay back the loan from the lender. However, all property owners will have to sign the Deed of Trust, which gives the lender remedies with respect to the property itself (i.e., foreclosure) in the event of a default under the terms of the Promissory Note.
Similarly, individuals seeking to disentangle from ownership of real property may assume that the process of conveying their interest by deed, whether in a buyout, by virtue of a court order, or in some other fashion, will suffice to remove their obligations to the lender. Then, years later, they find out that they are still considered obligated on the mortgage for a property they no longer own! This can create difficult circumstances when that individual wants to obtain financing elsewhere.
As a result, whether planning to purchase a property, or trying to remove oneself from ownership of a property, individuals must inform themselves about any obligations they may have to the lender issuing a loan secured by the property.
Beresford Booth frequently addresses real estate matters for a variety of clients, including individuals seeking to purchase property, and individuals seeking to terminate their co-ownership of property.