Downsides to refinancing co-owned house but keeping name on the title?

June 9, 2018 8:51 AM

For various [...reasons...] my SO and I have been living separately. We bought a house together about 5 years ago so both names are on the loan and the title. I am now trying to decide how to best remove myself from the mortgage loan.

Mu apologies for the wall of text.

The house has appreciated at least 30% since we purchased 5 years ago.

The short of it is that I decided I would be the one to move out with the understanding that this would give her space and time to "think things through". My expectation was that it would be for a few months and there would be meaningful dialog and work on repairing the relationship.

She's had the time and the space, from me, but so much of her time and life was taken over by an over-demanding job that she has not had time to "think about things". It feels unfair but I do not doubt this fact. She is in the process of changing jobs in the next few weeks.

But I am entering month 10 of paying slightly more on rent than what I was for the mortgage and hating not only seeing that money go out the window but also hating the new living space (noisy street, noisy neighbors etc..). I didn't purchase any furniture other than a bed because I thought this would be a temporary situation. I can't keep waking up stressed out and angry and do not want to live here anymore. We have 2 young children under 5 spending time at each place during the week since she works almost 14 hour shifts when she is at work and they definitely sense that their father is unhappy at this place so much so that they are always asking to go home.

I've approached a couple of banks about getting pre-approved for a new mortgage and unfortunately, on paper, it looks like I am paying both the mortgage on the existing property and the rent on my apartment and that's a big liability. I qualify for such a small loan amount that I would not be able to find anything to buy (or would want to buy) close-by.

It's my understanding that in such cases, for example a divorcing couple, the property is either sold at market rate and the gains are split between the parties or if one party wants to stay in the property it is refinanced at market rate (or another agreed on value) and that party is essentially buying out the other party. We are not married but had been together for almost 9 years. We are in Massachusetts.

As far as I can see these are the available options:

1) I buy her out completely, she walks away with half of the (appreciated value of the property - balance of mortgage). Remove her name from the title.
2) She buys me out completely, I walk away with the same amount of money as #1. Remove my name from the title.
3) We refinance in either my name or her name only for the current balance of the mortgage and keep both names on the title. Whoever takes the loan out gets to live there and the other person is released from the loan. Any gains are split in the future if/when the house is ever sold.

I am able to do #1 on my own with my current salary/credit score/etc., while she would not be able to do the same so #2 would not be an option for her. #3 is acceptable to me because I can either move back into the house or would be able to purchase a new house.

I have not discussed any of these options with her yet as I wanted to get some perspective on here beforehand. Of course if/when appropriate I would consult a lawyer. The bank makes it seem like it would be as simple as a refinance but with only 1 person borrowing and without changing the actual ownership of the property.

There is the possibility that we would reconcile in the next few months but honestly I'm tired of waiting and being in this apartment. Yes, I know I can go find another apartment but I would rather buy a house where I can accrue my equity and build something to leave the kids when I croak (hopefully not for another lifetime from now). If I had not been in this situation I think I would be still be looking to purchase another property for investment purposes so one reasoning for me is that I would be looking to buy a property anyway.

I am assuming if both names are on the title, both parties would still be responsible for the property taxes? But only the borrower would get the tax benefits of the mortgage interest deductions etc..

Is there anything else I am not considering? Overlooking? Missing? is this a good or bad idea in general?

Thanks in advance.

posted by eatcake to Human Relations (10 answers total)

I think that if you just got some more furniture you might feel a lot better, and your kids would, too. Get stuff that you _could_ eventually put into a more permanent living situation. This represents real progress, will make things better and more comfortable for you, and is not throwing money away.

If your wife is just about to change jobs, maybe try to hang on a few months more to give her a chance to really think; you buying/refinancing is a big step and it will affect her a lot.
posted by amtho at 9:19 AM on June 9, 2018

If I recall correctly.... when my father, in MA, divorced, his wife signed a quitclaim deed on the house and the rest of the details were worked out in the divorce decree. She remained on the mortgage (because she trusted him and, when he later died, us) and he just kept paying on it and gave her some buyout amount of money in the divorce which got paid out over time (and came due when he died, incidentally). Which is to say, this is a pretty straighforward breakup thing to work out, possibly made slightly easier if it was an actual divorce.

In any case, the order of operations here needs to be

1. get into a place you are comfortable and non-angry with because this is not going to be quick
2. talk to your ex about a timeline for getting things sorted
3. agree what needs to be done with the house and everything else and then start moving forward

If you're going to move into your former home, you will not be paying rent and a mortgage, so that should sort out okay. And payments for buyouts can happen over time if you agree to it.

they definitely sense that their father is unhappy at this place so much so that they are always asking to go home.

Unasked for advice: your kids don't care about your feelings as much as they want to be in a place set up for them, and one that is welcoming. not a place with no furniture and an angry dad. That is a thing you can work on this weekend and I suggest you do. I am sorry you are going through this.
posted by jessamyn at 9:43 AM on June 9, 2018 [5 favorites]

Why not sell the house and move on? It's cleaner and you can get your own place and she can get her own place. Is she unwilling to sell the house? I would talk to an attorney before talking to your ex-partner to understand more about your rights/responsibilities. It sounds like theoretically, she could stop paying the mortgage and you would be on the hook for it. I'm not a very trusting person, so I would assume that she is going to stop paying and stay in the house for as long as possible.
posted by parakeetdog at 9:44 AM on June 9, 2018 [1 favorite]

I would guess that OP wants to keep the house for continuity for the kids, if nothing else.

OP, if your wife has a lower income/credit score, she may not be able to refinance in her name only.
posted by praemunire at 9:54 AM on June 9, 2018

Response by poster: Thank you all so far. Just a couple of quick additions:

My apartment is not completely and depressingly bare. There are tons of stuff for the kids, toys, a table/chairs for them to eat at and do artwork on, toddler beds for the kids. TV, for them. I do have a couch (bought used) but no other adult furniture like kitchen table, or office desk/chair etc... I splurged on a coffee machine and toaster/microwave to keep me sane. Obviously there is a stove and fridge.

I want to hold on to the house for several reasons. It, and everything in the town, keeps appreciating. You cannot buy a house in the same town for what we paid for it 5 years ago. If you do then it will need work. Similar properties are selling for almost $200k more. But the main reason is that my oldest daughter is developmentally delayed and we really like the school system and the teachers and she keeps making great progress, so I would want to keep her there long term.
posted by eatcake at 10:16 AM on June 9, 2018

I think you need to talk to a lawyer first because you have a lot of assumptions that may be leading you astray. One other option you have not mentioned it to keep the house as a home base for the kids and you and her share the apartment (so one person is at the house with the kids for a week and one person is at the apartment, then switch places for the next week.
posted by saucysault at 10:20 AM on June 9, 2018 [5 favorites]

You definitely need to chat with a lawyer about your options. Having different names on property deed and mortgage is tricky, and it doesn't sound like you're aware of the motivations and concerns of the banks that would be loaning the money. For example, if your SO was on the title but not the mortgage, I think she could (attempt to) sell her share of the property and mess up the bank's security interest. I understand that you trust her not to do that, but the bank is probably not willing to extend the same trust -- they may want her name on the mortgage so that if she does something wonky, they have a way to force her back in line. (Or they'd likely charge you more interest for the extra risk in this unusual situation.)

A divorce attorney would probably be knowledgeable about property issues like this, so even though you're not in a typical "divorce" situation, that's probably the type of attorney you'll get the most useful information out of for your consultation fee.

IAAL, IANYL, TINLA.
posted by spacewrench at 10:33 AM on June 9, 2018 [1 favorite]

I don't have a specific suggestion, but a general suggestion- whatever decision you make, follow all the legal formalities. Life has a way of throwing us curve balls and even if both parties are good people acting in good faith crazy things can happen. (For example, suppose that your ex is at fault in a car accident and the damages exceed her coverage- and there's a judgement against her and a lien against the house. Or someone is injured on the property, and there's a lawsuit. Or you or your ex become disabled and have to enter a "spend down" scenario in an assisted living facility) Establishing formally who owns what percentage of the house and who's responsible for the mortgage can be really important under those "black swan" scenarios.
posted by Larry David Syndrome at 12:00 PM on June 9, 2018 [2 favorites]

Financial Planner here.

If you go to the step of one person buying the other out, do NOT have a real estate agent provide a value for the house. They are not accountable for the estimate, and often don't have the experience to provide a good estimate. Instead, use a licensed home appraisal service. You write them a check, they appraise the home, and provide an estimate.

Option 3 as described above is exceptionally difficult. You're looking for an equity stake in the home, but there isn't really a commonly accepted method of accounting for one. A home is really two assets: land, which may go up and down in value with the market, but doesn't depreciate. And the structure, which needs maintenance, and which depreciates in value unless maintenance is kept up. Also, the house is full of other assets like appliances, furnace, central air, etc that need occasional replacement. And then there's the kitchen, and bathrooms, which need renovations perhaps every 25 years or so.

So if you're not living there, who pays to replace these assets? Do you split the cost of a kitchen renovation, even though you're not living there? It increases the value of your equity, so perhaps you should, but you don't get any day to day benefit of it. What happens when she opts for a nicer renovation than you would because hey, you're paying for half of it. If you make her responsible for all of the maintenance, why should she give you half the gains. Those costs add up to a lot over time.

It's easy to agree that she pays the electric bill and property tax, but what about replacing the fridge?

This problem is basically unsolvable. You'll end up negotiating everything with your partner. It cannot help but come to conflict.

Also, the next issue is about sale of the home. If a miracle happens and you have an accounting of the gains, it is going to eventually be a good amount of money. What happens if you want that money but she isn't willing to sell, or can't afford to?

This way lies madness. Don't do it.

Having to sell a home is one of the real frustrations of relationship breakdown. There is no good solution. But option 3 is the worst.
posted by thenormshow at 1:49 PM on June 9, 2018 [5 favorites]

I've approached a couple of banks about getting pre-approved for a new mortgage and unfortunately, on paper, it looks like I am paying both the mortgage on the existing property and the rent on my apartment and that's a big liability. I qualify for such a small loan amount that I would not be able to find anything to buy (or would want to buy) close-by.
...
As far as I can see these are the available options:

You did not mention the idea of moving back into the house, so that you are not paying rent, and then approaching the banks again. If you were liable for just the existing mortgage, would you qualify for a second mortgage that would buy somewhere you'd want?
posted by the agents of KAOS at 1:07 PM on June 10, 2018