Legal Issues in a Post-COVID World: We Bought a House Together and Broke Up

Since COVID has changed the way that we live and work, I have seen a handful of legal issues come up over and over. This blog series addresses some of these issues. The first article in this series talked about what happens when your adult child moves in and will not leave. Another scenario that has come up a lot since COVID began happens when two unmarried people buy a house together, but then split up, leaving them with a house to deal with. This becomes even more complicated when one of their parents pays for the house or provides money for a down payment.

A Deed is Not a Wedding Ring

Maybe it is because the rental market is so tight and expensive and couples do not want to pay for two rents. Or maybe it is because the housing market is so tight that someone finds a house and feels like they cannot pass up an opportunity to buy. Or maybe so much time apart has made people rush into living together. For whatever reason, we have seen an increase in the situation where two people buy a house together and then break up. When the two people are married, the laws of divorce and equitable distribution take care of what happens to the real estate when they break up. But when the parties aren’t married, the same laws don’t apply. The couple has to decide what to do with the house. Either both people want to sell the house, or – more often – one person wants to stay in the house and the other wants to move on.

Legal Status of Non-Married Co-Owners of Real Estate

When two people who are not married purchase real estate together – that means both names are on the deed – they are called either “Joint Tenants” or “Tenants in Common.” Most of the problems that come up in this situation are the same regardless of the type of legal ownership. So for the purpose of this article, we will just call the two people “co-owners.”

When both co-owners want to sell the house, they both have to cooperate with signing agreements with realtors and signing settlement sheets and the deeds.

When only one person wants to sell the house, they can file a “partition action.” That is a lawsuit where the co-owner who wants to sell forces the property to be put up for sale. They can do this even if the other half of the couple wants to remain in the house.

Regardless of whether the sale is voluntary or is forced through a partition action, the general rule is that both co-owners share in whatever equity they have in the house.

Common Mistakes: Unequal Contributions

One of the most frequent problems that we see is where one co-owner puts more money into the house than the other. This happens when one person pays the downpayment and closing costs. Or when the parents of one of the couple pays the down payment or even buys the house completely. If they agree to sell the house and move on, the general rule is that they split the proceeds evenly. Obviously, this is not fair if one person contributed more than the other.

We also see two variations of this problem. The first is when the couple (remember, freshly broken up) cannot agree on their contributions. One person paid closing costs, but the other paid for the new roof or paid the mortgage. The second variation is when one person moves out and the other continues to live in the house. If they are sharing the mortgage, then the person living in the house is living there rent free.

In all of these cases, one person might feel entitled to more of the proceeds of a sale than the other co-owner.

Common Mistakes: “I’ll live here and make the mortgage payments.”

One of the situations we see over and over is where one co-owner moves out, but the other wants to continue to live in the house. The person remaining in the house promises to continue to pay the mortgage. Of course, they never refinance or take the other person’s name off of the mortgage. This also happens a lot when people are married and finalize their own divorce.

The problems come when the co-owner living in the house stops making those mortgage payments. When this happens, the mortgage company forecloses on the house. This hurts the co-owner who is not living in the house, because:

• If both co-owners are named on the mortgage, the foreclosure goes on both people’s credit reports.

• A foreclosure means that the mortgage company will put the property up for a public sheriff’s sale. If the house is sold, any proceeds will be split evenly between the co-owners. This has the same problems as the section above if the co-owners have unequal contributions.

• If the co-owner living in the house stops paying the mortgage, he or she is probably living there rent free. Even if the co-owners contributed evenly at the start, the co-owner who was supposed to be paying the mortgage is getting more of a benefit.

• If the property was put on the market and sold right after the break-up, there might be some proceeds to split up. When a mortgage company forecloses, they add interest, penalties, attorneys’ fees and court costs. This means that very often there are no extra proceeds to split up if the house is foreclosed upon.

What Can You Do to Protect Yourself?

There are a few ways to protect yourself from financial harm in this situation. At least, a few ways that do not include relationship advice. Some things to consider are:

• Sign a “co-tenant agreement” before you purchase the property. A co-tenant agreement spells out the contributions of each person and how the proceeds of a sale are divided between them. For example, a typical provision in a co-tenant agreement might say that co-tenant A contributed $20,000 in down payments and closing costs. If the house is sold, co-tenant A gets the first $20,000 in proceeds, and the rest will be split evenly after that.

• Do not let one co-tenant live in the house while both people are named on the deed and/or mortgage. This might sound like relationship advice, but it isn’t. If one person wants to keep the house, then they should buy it. Or they should refinance the mortgage in their own name (which is practically the same thing). If the co-owner cannot afford the house, you should put it up for sale and move on. You have broken up with the other person, split up your photos, settled ownership of the dog, etc. You should do the same thing with this big financial investment, too.

• If you cannot agree, file a partition action. Putting the house up for sale needs both co-owners to cooperate. If you cannot get your former partner to cooperate, consider filing a partition action to protect yourself and your investment.

• One for the parents: Don’t buy a house for your kids without taking back a mortgage. Maybe one of the sets of parents is able to provide money for a down payment or even purchase the house. You should consider a mortgage on the house. If not, the two co-owners are going to split up the money that the parents put into the house. If you are in the wonderful position to buy a $200,000 house for your child and his or her partner, and those two split up, the ex-boyfriend or girlfriend could walk away with half of your payment. If you put a mortgage on the property, and they split up and sell the house (whether voluntarily or in a partition action), your mortgage gets paid before they get any of the sale price.

The best, most general piece of advice when two co-owners break up is not to agree to anything without thinking through the financial outcomes. All of these suggestions help the parties move on without adding a financial heartbreak onto the emotional one.