Mortgages and Deeds When it Comes to Cohabitation
I have received many questions over the years about boyfriends/girlfriends on the mortgage, but not on the deed or vice versa. There seems to be a bit of a confusion about this situation. This week, I received a call from a potential client who ended up hiring us and he and his ex-girlfriend own a home together. He and her are both on the deed, but he’s the only one on the mortgage. And he called me because he wanted to buy her out essentially. Since they’re no longer together, this is actually the ideal situation for a buyout because she’s only on the deed. The only thing that needs to be done after they agree to the terms is to transfer title to him. Since he’s already the only one on the mortgage, there’s no problem there. He just keeps paying the mortgage, nothing changes. So what we’re doing for him is drafting up an agreement whereby he pays her a certain amount and she agrees to transfer title to him and disclaim any interest in the property. That’s a really easy situation because we don’t have to deal with the mortgage.
The more difficult situation comes in when two people, boyfriend/girlfriend, normally this doesn’t happen when people are married because they’ve got bigger problems and they’re talking to a divorce attorney about this, not me, but if we’ve just got two people cohabitating and own property together, and they’re both on the mortgage, if one of them wants to buy the other out, no problem, except it’s a little more complicated because of course, they’re going to have to try to refinance and get the other person off the mortgage.
It’s much easier to just transfer title. Title transfer is not a problem. Depending on what state you’re living in, there might be some property taxes that you need to pay. I can tell you in Nevada, in this situation, he should not be paying any property trends or taxes because there’s an exemption since he already has an ownership interest in the property. The more difficult situation is when you actually have to change the mortgage so that only one person is left on the mortgage. In that situation, you generally have to refinance. There’s no other option.
Now there are weird situations where people are on the mortgage, but still want the other person to buy them out. They’re going to continue paying the mortgage, that’s the key, because if you’re in a situation where you’re on somebody’s mortgage and you agreed to have them buy you out, but the buyout doesn’t include them refinancing and getting rid of that mortgage, you’re taking the risk that they’re going to continue to pay the mortgage. And if they were to ever stop paying and the house gets foreclosed on, that’s going to hit your credit. So you want to be really careful if you’re in that kind of situation, because you definitely want the mortgage to, in our state, in Nevada, when you take out a loan on a property, the bank or the lender records, what’s called a deed of trust on the property. That’s their collateral. That’s how they get their money. That’s how they get everything at the end. They record it in the chain of title and it gives them the right to foreclose if you don’t pay. So that’s how they have a secured interest in the property. That’s why you definitely don’t want to walk away from a property where there’s a mortgage and your name is on there because who knows if the other party is really going to make the payments and keep up with it. And if they don’t, then you’ve got a problem and it’s going to hit your credit.
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