shared housing question

June 25, 2005 4:30 PM

Homebuying question. I am buying a house with my girlfriend and another couple. We need a contract for if things go wrong, like if someone can no longer pay their share of the mortgage or something. Does anyone have any experience with this sort of thing ?

We have lived together about 5 years. We are buying together because neither couple could afford it alone. We are planning on talking to a laywer but i wanted to hear some other experiences first. Thanks!

posted by miles to human relations (16 comments total)

This kind of thing frequently ends in disaster. However, if you tread carefully, you can get it done right.

You must, must, must not trust this to just any lawyer or mortgage broker. A generic home purchase by a married couple or single person (99% of the purchases out there) is exceptionally simple and routine, and most lawyers and mortgage brokers will not know more than those simple routines -- NONE OF WHICH will apply to you.

Make sure you find a mortgage broker and lawyers who are VERY experienced with co-housing arrangements of the sort you're contemplating. Note that I said lawyers -- certainly each couple, and probably each individual within each couple, will needs independent counsel, although ultimately one lawyer can handle most of the financial details with the bank. You should expect to budget at least $5,000, and probably $10,000, to get the lawyering done right. (Versus $500 to $1,000 for a generic purchase).

There are a myriad of very complex things that have to get handled correctly to get all of the capital basis of your respective contributions to the downpayment and tax benefit issues right, and to make sure that mutual rights and responsibilities are laid for all kinds of circumstances.

Among other things, it is critical that you have a master agreement spelling out the consequences of dissention, backed up by separate agreements of the couples, one between you and girlfriend in light of your state's palimony laws, and the same type of agreement between the other couple (or post-nuptial agreement if they're married). This is critical critical to make sure that a split between one couple doesn't end up kicking the other couple out of the house.

However, before you even go down the road, know this: if you're buying a single family house, every bank is going to require each one of you four to be FULLY responsible for the mortgage, meaning that notwithstanding any agreement you all might sign, if someone walks away you WILL be stuck with his share if you want to keep the house (and in some states, even if you get foreclosed on).
posted by MattD at 6:26 PM on June 25, 2005

I've done this -- three of us, actually, Me, my Boyfriend, and a third friend all purchased the house we were renting at the time when we were offered A Deal Too Good To Refuse.

Perhaps we should have done what MattD suggests above, but we didn't. We had a simple, one page document notarized, which basically said that if any one of us wanted out at any time they could be bought out by the other two for a specified amount (sliding scale based on years we owned the house and amount that we had each put towards the down payment), provided we had six months notice. Or that any two of us could buy out the third party given six months notice. My boyfiend and I bought out the third person last summer, when she and her fiance bought their own first house.

Our biggest hassles were getting homeowners insurance, and one stupid-ass banker who wanted to do a whole "Hey, your buying the house with two women, nudge, nudge wink wink" thing with my boyfriend.

Our morgage company (Countrywide Home Loans) was unfazed by the transaction. We are all still friends despite having owned a house together. Email me (my email is in my profile) if you have specific questions.
posted by anastasiav at 6:48 PM on June 25, 2005

I'm happy for Anastasiav's experience, but two things are very important to point out: (a) it's highly unlikely a court would have enforced the agreement she mentioned (one page, and presumably without legal counsel) had a party protested its enforcement and (b) don't EVER rely upon the bank's approval as a sign that a structure is good. Because the bank is getting three (or more) people to be liable for the mortgage, instead of the ordinary one or two, of course it is likely to be overjoyed to do a co-housing deal ... but that doesn't mean it's right for you.
posted by MattD at 7:13 PM on June 25, 2005

(1) I agree with MattD that you need a lawyer, but I think separate counsel for everyone is overkill. As long as everyone is getting the same deal (i.e., all rights and obligations are reciprocal and proportionate), I don't think there is a serious conflict situation. $10,000 is too much, I think. If you are calling lawyers cold, I would ask them straightaway if they have ever done this before. If they seem like they are bullshitting, don't use them -- you want someone who has done the deal before and can basically re-use standard documents they have created. You might also ask around and see if anyone has used a lawyer for this sort of thing before in your area.

(2) You want to think very very carefully about how much you trust these people (all of them) and how likely it is you think both couples will still be together in 3-5 years. I worry that you are buying with your girlfriend rather than your wife/fiancee/partner. If there is any significant chance that someone is going to break up (either you and your girlfriend or the other couple), then this is probably not a good idea. Even if you have a great contract with all of the rights and responsibilities established in advance, enforcing the terms in a bad situation (i.e., you need to throw someone out) will be horrible as a practical matter. Along these same lines, the bank will very likely hold each of you separately responsible for the entire mortgage. That means if the other couple flakes out, the bank can come after you for the whole thing, and there is nothing you can do about it. You need a huge amount of trust here -- you can't replace trust with legal documents in a situation like this.

(3) I hate mortgage brokers and think they mainly rip people off. Call Countrywide and Washington Mutual and make sure you can't just get a good deal from them before you spend a lot of time with a broker. (Off topic, sorry.)
posted by Mid at 8:17 PM on June 25, 2005

Have you considered setting up an LLC for the four of you and buying it as a rental property - the LLC would be pass through but it would make the process of ownership and departure pretty straight forward matter of shares which have legal constraints. Just a thought. Check with your mortgage banker for the name of a real estate lawyer that can work with you on this project.
posted by ptm at 11:38 PM on June 25, 2005

No advice, just that this seems like a supremely bad idea.
posted by fixedgear at 3:59 AM on June 26, 2005

If you do this, know that your girlfriend is now your "financée".
posted by Aknaton at 5:31 AM on June 26, 2005

For the purposes of the agreement, don't think of it as buying a home together, think of it as buying a business, or making an investment together. Realize how really crummy it would be if a couple splits up and there's a financial disaster in addition to an emotional mess. What if Mr. A has an affair with Ms. B? What if Mr. B loses his job and can't pay the mortgage? Talk seriously about how you would handle these issues. Talking about it beforehand will help you be prepared.

As for me, a simple 3 paragraph document, not even notarized, saved me my house when I got divorced.
posted by theora55 at 5:36 AM on June 26, 2005

I don't understand why MattD thinks courts would ignore a good faith agreement between parties... The court might not interpret it in the way that seems most obvious to you, which may or may not be a big problem, but the court would honour the document weather a lawyer wrote it or not.

Am I missing something huge here? Aren't all agreements legally binding weather verbal, notarized, scribbled on a napkin or lawyered over for hundreds of hours?
posted by Chuckles at 6:10 AM on June 26, 2005

It's not that the courts would "ignore" a good faith agreement between parties, or that agreements aren't necessarily legally binding, it's that with a casually done agreement, there can be later disputes, or one party can easily deny ever having signed it. See more here.

When you're obligating yourself at this level, and there are other people in the mix, you can't be too careful. Relationships change.
posted by JanetLand at 7:24 AM on June 26, 2005

Chuckles: no. There are a variety of reasons that a contract may not be enforceable. And there are some contracts that are enforceable only if they are in writing and signed. I wouldn't do something so unusual involving so much money without having a lawyer look at it.
posted by grouse at 7:29 AM on June 26, 2005

You should not be buying a house with anyone you're not married to unless each of you could afford it on your own.
posted by kindall at 10:22 AM on June 26, 2005

miles, your profile puts in you in Northern California. What you need to find is an attorney with experience in helping a group of people purchase property under a "Tenancy in Common" arrangement. There are certainly attorneys in San Francisco with lots of experience in setting up this type of ownership structure. I can't refer you to anyone I know, but either the Bar Association of San Francisco or the State Bar of California can point you towards an attorney experienced in these matters.

I don't have any personal experience in it myself, and while I think you absolutely must have the assistance of good legal counsel, the TIC structure is fairly common out here for precisely the reason you mentioned.

Good luck!
posted by ambrosia at 11:26 AM on June 26, 2005

In the past my boyfriend did this with nine other people, in the form of the LLC agreement mentioned above. They bought a huge multifamily house and each owner paid rent to the LLC. When someone wanted to move out, it was simple -- they could either sell their share in the company outright, or they could rent their unit out individually.

Apparently it all worked great, except for the part where they dissolved the partnership and sold the house just before the real estate market really took off.
posted by nev at 2:38 PM on June 26, 2005

You might want to take a read through this thread from a few months back.
posted by pwb503 at 4:24 PM on June 26, 2005

I'd go the LLC route. It'll cost you a couple hundred bucks a year but it is the simplest thing and will protect you if one of the partners paralysis a kid in an auto accident or something where a simpler document won't (IE: a judgement against anyone member will only attach to their 1/4 share.). I'm not sure how this will effect the morgage insurance income tax americans get though.

Aknaton writes "If you do this, know that your girlfriend is now your 'financée'"

This ain't true unless you've been introducing her as your wife, filing joint tax returns or otherwise acting as if you were married.
posted by Mitheral at 7:15 PM on June 26, 2005