Transfer of equity after break-up, but it's tight...

getmore4less

The declaration of trust was badly drafted.

Here is how equity shares should be done.

The £10k deposit should represent a share of the cost of the property.

Asuming no other deposit then the mortgage represents a share of the purchase price and the costs of purchase the rest so depending on how these were paid that will effect the final % each own


If the mortgage is paid as part shares say 2:1 then that is fine as long a there have been no capital injections say to do it up since these complicate things further.

It makes no difference if the mortgage is repayment or interest only or how much anyone has paid it is only used to calculate the share of the initial purchace, think of it as two loans totaly seperate from the house say borrowed off parents if that helps the understanding of why this debt is now unrelated tot he puchase beyond calculating the % ownerships.

On sale or transfer of equity you either sell or agree a price taking into account potential costs then you divi up that amount in the % ages calcualted at purchase time, you then each settle your debts or share of the mortgage from the proceeds topping up if needed with your own funds or keeping any surplus

eg:
£200k house £10k deposit(one person) £10k fees paid equaly
£190k mortgage split 2:1. so £63333 and £120666

total cost of purchase is £210k

£10k deposit is worth 4.762%
£5k fees are worth 2.381% each
£63333 is worth 30.159%
£126666 is worth 60.317%

so party one with the 10% deposit and 1/3 mortgage and 1/2 the fees owns 37.3% of the house and 1/3rd of any outstanding debt on the mortgage.

party 2 with no deposit and 2/3 mortgage and 1/2 the fees owns 62.7%.

now when it comes to selling/equity transfer the house is worth £190k.

If not actualy selling then accounting for costs gets complicated since there are few real costs at this time. the big one is the estate agent fees so you could include those at a nominal 1.5%.

assuming no cost(there will be solicitors fees to do the transfer then the split is

£70.87k less the debt of £63333 if I/O so net £7537
£119.13k less the debt of £126666 so net £-7536

This works for any combination of values most other techniques that use money in==money out fail one or more boundary cases.


Now since you have this declaration which she agreed to you can chase her for any short fall and she should seek recompence for the bad advice.

The fact she is no longer contributing means she just owes you more each month if you pay it so keep good records.

getmore4less

Asa followup

On the mortgage payments that you agreed.

One way to help resolve these on splits is that you work out the market rent for the place and those remaining in the house pay that rent and it gets spit at the %owned.

since she is not paying you offset this nominal rent from the payment due.

One option for you while trying to workout what to do is get lodgers and live with parents part time to reduce the commute costs.

If you could find a weekday lodger this could work out very well for you.

Mewcenary

Thanks for the replies.

I agree on a lodger to help out financially.

Also, I am not against buying her out (Transfer of Equity), but if she insists on 10k then obviously she will have to wait until the house reaches its original value (could be a few years?). I don't see any reason right now to pay her 10k...

Am I missing something!?

getmore4less

If you decide to wait it out and she refuses to pay her share of the mortgage as agreed then I think you need to renegotiate the 2:1 split of any excess or offset lodger income.

Based on a 2 share then if 2/3 of a lodgers income( or 1/3 of a full house rental) covers the 1/3 share then that would be fare to keep the spare equity as agreed(even though the original agreement was flawed).

You could point out that the agreement you currently have gives her nothing in fact has her owing you money and requires her to continue paying the share of the mortgage untill sold or the transfer completed.


Long term keeping the house jointly will get less and less amicable(not that it is now), as soon as either of you gets a new partner, having financial connections with an ex usualy does not go down well, so coming to some agreement so you can make a clean break has some value even if you have to comprimise and cough up some cash, if the agreement had been done properly you probably would have just not the full £10k.

Try doing the numbers properly and see what that gives you owning her it might be aceptable and if there is good rental/lodger potential this may not be a bad option since once transfered you ge to keep it all.

There is the consideration do you want this house, a quick sale may be just as costly as buying her out.

zzzLazyDaisy

Just put the house up for sale. Take a lodger to help with 'her share' of the mortgage if you need to.

And explain to her that, as the house is in negative equity, as a joint owner she will be liable for 50% of the costs of selling (solicitors fees, EA fees, and neg equity)

Then you can move closer to your work, and you won't have had to pay twice over (first by giving her £10k and second by taking over her share of the neg equity).

Even if she refuses to contribute towards the costs, it won't cost you any more than complying with her demands, and you will be free to re-start your life.

JimmyTheWig

A tough situation.
It sort of depends on how things are between the two of you, how much you feel guilty for breaking it off, whether you have mutual friends, etc.

I agree that you need to get this sorted sooner rather than later and a clean break would be best for everyone.
I think nick1977's idea sounds fairest - i.e. she gets her 10k back less her share of the negative equity.


In terms of moving on from here, have you considered renting the whole house out and moving in with your parents? There would be tax implications in doing this, but it might make sense.
You could at least do this until your redemption penalty date has passed.

Mewcenary

I did try that offer, but she would rather wait until the house reaches its original value (naturally not going to be any time soon). She expects to rent out 'her' part of the property until then, but of course not pay the mortgage. There's no guarantee of ever finding a housemate, so it seems a bit unfair ('cake and eat it').

zzzLazyDaisy

Okay, then tell her you are moving out, and she can take over the house and the mortgage!

What she can't do is to force you to carry on living in the house and taking full responsibility for the mortgage and upkeep, for the next (10? 15? 20?) years until it suits her to sell.

The legal position is that the purpose for the joint trust under which the house was purchased no longer exists (ie it was bought in joint names to provide a home for you both). She is no longer living in the house or contributing to it. So you are perfectly entitled to put the house up for sale, and you do not need her permission to do this.

Unfortunately if she refuses to sign the contract and sale documents, your solicitor would have to apply for an order for sale, which would then get messy and expensive. However, hopefully she would wake up before then and with some robust letters from your solicitor, see sense.

JimmyTheWig

If she's not happy with 8k then I'd say the gloves are off and you should sell the house.