We see dissolution of agreements that can affect your mortgage, and one of them is a divorce or split of some kind. To avoid a nasty assets battle in court, you can choose to buy out your partner.
Let us first take a deeper look into what exactly a mortgage buyout is. While most of us enter into a marriage or partnership hoping that it will last forever, sometimes reality hits and that’s not the case.
Two people bound in some sort of matrimony often own the property 50/50. This can pertain to friends and family members as well. In these cases, a buyout occurs when one party purchasing the property equity owned by the other.
After this happens, the person who was bought out has their name removed from the deed, have no more mortgage payments and have no claim over the property anymore.
Getting legal advice is important when you legal matters come into it, but there is also homework you can do on your end to make sure you aren’t going into it blindly.
One more thing that may sound a bit comical is to make sure that the relationship is truly over. We have seen many cases where proceedings have started and couples decide to reunite. This renders the division of assets and all other efforts pointless, not to mention, a waste of time.
The first step is to identify how much your property is worth. For example, if the property is worth $300,000, then your partner is entitled to half of that and so are you – which comes out to $150,000 each.
This means that in order to buy him or her out, you need to come up with $150,000 (what she or he is entitled to) to buy them out.
In order to make sure there are no errors made in the value of the property, we suggest getting an accurate appraisal. This way, you can guarantee that neither party will be shortchanged.
If you don’t have that much cash, then another option is to refinance. This is plausible if you and your partner are in good standing with the bank. If you or your partner is able to borrow this amount, then you can buyout the other person by cash-out refinancing.
The specific amount will depend on your equity. You will need enough to pay off the old mortgage and enough to buy out your partner. This will be a large mortgage that may not sound inviting to many lenders.
Buying out your partner by refinancing can only occur if you have significant borrowing power.
This can get a bit unpleasant and may only be significant in a divorce. In a divorce, you are seeing a split down the middle of all assets (presumably). You can offset how much your partner is entitled to in the property with other assets.
For example, if you have a rare painting collection that is worth $100,000, in reality you are both entitled to half of it. However, if you give it up you can take $50,000 off his or her equity in the property.
This is a much more pleasant way to lower your partner’s equity without having to take out another mortgage far greater than your first one.
Buyouts cannot occur if both parties are not in agreement. If one disagrees with the buyout, then a court order is needed. This mainly pertains to a divorce. If you and your partner were not married, you still have a few more options.
If you aren’t married, you can ask the court to sever the ownership agreement and this will allow you to take your equity out of the property. Another way is the court may issue an order for you or your partner to buy the other person out.
This may sound forceful, but it only happens if only one party can afford to do so. What’s actually more common in this case is for the court to advise both parties to put the property on sale.
Once the property is sold, you and your partner both take equal shares of the proceeds AFTER the mortgage or mortgages are paid.
All the options we have presented above are contingent on the fact that one or both parties have equity in the home. However, if there is negative equity, then both parties would need to come up with money to get out of the property deal or build up enough equity to eventually sell.
You can do so by renting out the property while you wait. The profits from the renters can go to bills, etc, and whatever is left can be split equally.
In order to qualify for buyout proceedings in Canada, you will need to provide proof. The proof would be a signed separation agreement. You should also submit papers that clearly outline your asset division.
If you were not bound in marriage to your partner (ie. friends and common law partners ), the you won’t need a separation agreement and instead just refer to the purchasing contract.
To qualify for a buyout, both involved parties need to be on the title of the deed. Only registered owners of the property can argue for a buyout.
Which method you choose will depend on you and your partner. What makes the most sense for both? What have you agreed on? Ending a partnership, no matter what kind, is never something happy and pleasant.
To make proceedings as painless as possible, familiarize yourself with the mentioned options and negotiate final terms. Prepare all the necessary documents so the process is quick and easy.
It’s also best to get the property appraised for the full value or at least enlist the services of your local real estate agent to get a picture of how houses are buying and selling in the area.
Increase your knowledge in mortgage matters! Learn what happens to mortgages that are not renewed, next!