As you know, when you buy real estate, the proof of ownership is done with a grant deed. It’s kind of like the pink slip to a car. If you have a mortgage, a lien or deed of trust, it will be recorded against the property so that the lien holder is paid off when the property is sold. 

The vast majority of people hold title as a couple. Exactly how they hold title depends on several situations, such as first-time married couples, remarried couples who have kids from previous marriages, or unmarried couples or friends. But that’s an article for another day.

But sometimes people want to share a property with a family member or friends. Why would you do this?

Well sometimes one couples' income isn't sufficient to qualify for a mortgage so another person is added to the loan application. Or, sometimes you want your friend to share in the joy and ownership of the property. I could easily see a scenario where two good friends will want to buy a second home somewhere else like in Napa or Lake Tahoe. They can share a lot of memories over the years watching the kids grow up or great parties when other friends come for the weekend. You may also want to include a family member, figuring that he or she will someday inherit this property anyway. So, why not.

It seems so tempting going away with friends or family to beautiful places and thinking how nice it would be to have a second home in the mountains or on a lake. But before you jump, you need to have a frank conversation about shared responsibilities, usage and, most importantly, an exit plan. While you feel you may know these people really well or they are family, you really need to develop a contract spelling out exactly who does and pays for what expenses and what are the procedures if one party wants to sell out its interest. 

Whatever you do, don’t rely on a handshake over drinks. You are setting yourself up for a major headache down the road should your plans change over time. And let’s face it, they probably will. Fast forward several years and you are finding you aren’t using the property as much as before and you need cash to send your kid to college. So, you approach your partner and tell him you want out. What happens if the other partner isn’t in a position to buy you out, or isn’t interested in selling?

Now what do you do? You can bring up your understanding of what was agreed to over perhaps a few too many drinks years ago, but the funny thing about memories is that they fade over time or other people recall something different. This is when things start to get unpleasant.

Selling an equity interest in the property to another friend is hard as you will need to refinance the property to get a new mortgage and remove you from both the title and liability of the debt. That may be hard to do as the other partner has to agree to the new costs involved, such as higher property taxes because of the sale or higher mortgage payments, etc.

And if your partner doesn’t want to sell at all but you do, you have a problem.

Assuming you can’t come to an agreement on this, you are probably going to need a lawyer to help you resolve this through something called a partition action. Of course, this can take time and will cost money. And it will put a serious strain on your relationship. And without a partnership agreement, this will get messy because its then your word against your friend or family member. 

The best solution to avoiding this problem is to keep 100 percent of the property to yourself and invite friends and family to use it as a guest. But if you do need others’ financial involvement to make it work, make sure you draft a partnership agreement spelling out all the “what ifs.” This will avoid all the ambiguities or faulty memories down the road. 

It kind of reminds me of an expression I heard. It’s so easy to get married, but so difficult and costly to get divorced!

Steven Hyman is the broker and owner of Century 21 Sunset Properties.  He can be reached at 726-6346 or at century21sunset.com

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