How to split house & mortgage 3 ways when 1 person isn't contributing toward deposit?

Sheveko

Generali wrote: »

There isn't going to be a way to do this that is both simple and fair because at different points in time, different people will have paid in different amounts.

My solution would be thus.

X puts in £40,000 deposit and borrows £43k
Y puts in £40,000 deposit and borrows £43k
Z borrows £40,000 'deposit' and borrows £43k

Using a spreadsheet you can work out how quickly Z is repaying the the deposit part of the mortgage. PM me if you want a mortgage repayment spreadsheet. When you sell, assuming you make a profit which isn't a given, X & Y should get their £40,000 back and Z should get back the part of the deposit loan that has been repaid. The remainder, after the mortgage has been repaid of course, should be split 3 ways.

Oh sweet jesus! I've just spent the whole day creating this massive spreadsheet based on the mortgage calculator spreadsheet you gave me and it's pumping out the same numbers as my original spreadsheet which is based purely on percentages!! Hehe.

The problem remains however. While the maths works out, how do you describe this maths in a Deed of Trust?

getmore4less

Sheveko wrote: »

Oh sweet jesus! I've just spent the whole day creating this massive spreadsheet based on the mortgage calculator spreadsheet you gave me and it's pumping out the same numbers as my original spreadsheet which is based purely on percentages!! Hehe.

The problem remains however. While the maths works out, how do you describe this maths in a Deed of Trust?

The thing is that as long as the mortgage is paid in the mortgage % it just works even for over payments.

The differing amounts paid don't actualy matter as long as you follow 2 basic rules.

Any spending on the house is done at the ownership %

Any spending on the debt is done at the debt %.


This situation is very simple, people are just trying to make it complicated for no reason.

KISS principle applies


( I think it is the debts combined into one and called a mortgage that seems to confuse people, if all the borrowed money came from elsewhere as three seperate chunks so it looked like the place was paid in cash people would not have an issue)

The problem will be finding a solicitor that has a clue.

basic wording is.

The proceeds from the sale after costs but excluding debt repayment are split 1/3 per person.

The debts are paid off in the following zz%:yy%:zz% by each person


All payments to the debt during the life of this agreement are also at zz%:yy%:zz%

(Legaly all three are liable for the full mortgage)


you need to account for at least the following(there are more)

One or more wanting/needing out
One or more of you dieing
One or more of you having income/payment issues)

If planning to live in the house what do partner/lodgers pay how is that calculated/distributed.

Overpayments on the debt which are not in the % agreed(this is a relatively easy new % calculation and does not need a house valuation)


Seperate the running of the house from the asset/equity/debt/capital investments.


It might be a good idea to think of the ownership as one entity and you rent as if you were doing a house share, this makes the inclusion of lodgers/partners an easier costing.

You gather all the rental money and share it out 1/3 each offseting your own inputs, also help if the rooms are different sizes and would normaly be different costs in a house share.

Sheveko

getmore4less, many thanks. This is exactly the way we've been discussing it between ourselves until our solicitor told us it didn't work. Given that our solicitor hasn't really listened to us (her first email asked questions that were answered in the email she was responding to!) it doesn't surprise us that she has it wrong.

zzzLazyDaisy

getmore4less wrote: »

YES you split the 1/3 shares THEN pay off the mortgage in the % being paid.

In real terms this isn't possible as the mortgage must by law be paid off first, and then the net proceeds (ie what is left) is paid to the sellers in whatever shares have been written into the trust.

Sheveko

But in real terms (in terms of the monetary outcome) it does work because one's share can be a liability so the mortgage is always paid off first, just after the calculation is done on paper. No?

getmore4less

zzzLazyDaisy wrote: »

In real terms this isn't possible as the mortgage must by law be paid off first, and then the net proceeds (ie what is left) is paid to the sellers in whatever shares have been written into the trust.

As Sheveko says its a paper execise that calculates the amount each gets the actual order of money flow is not that relevent

The agreement needs to says that that debt is not split equaly.

So each gets a 1/3rd BEFORE debt repayment less their share of the debt.

...............

if this really cannot be done by the legal people then the alternative approach where 1&2 lend 3 1/3 each of their deposits should be understandable.

If 3 is income healthy they pay off their debt to 1&2 over time, in the background contribute to their extra mortgage interest to avoid tax issues with the loans.

Just complicates what could be very simple.

The key here is you need an agreement that legal people understand and accept since if there is a dispute that goes legal there will be no winners once the legals start arguing what was meant when they don't understand.

Formula are a big risk in a legal docs.


With all the other stuff going on with the refurb, getting the exit plan well defined is quite important.

Sheveko

Generali wrote: »

Using a spreadsheet you can work out how quickly Z is repaying the the deposit part of the mortgage. PM me if you want a mortgage repayment spreadsheet. When you sell, assuming you make a profit which isn't a given, X & Y should get their £40,000 back and Z should get back the part of the deposit loan that has been repaid. The remainder, after the mortgage has been repaid of course, should be split 3 ways.

What if the amount left after paying off the mortgage doesn't quite add up to their £40,000 each + the equity owed to Z. How would you suggest dividing it?

(or for that matter negative equity... but one step at a time!)

ViolaLass

House costs £250k and sells for £500k.

A and B each get £80k (deposit which has doubled) and 25.4902% of the remainder, £86,667, totalling £166,667k each.

C gets the rest, which is £166,667k.

House sells for £200k.

A and B get four fifths of deposit back (£32K) and 25.4902% of remainder (£34,667), totalling £66,667 each.

C gets rest, which is £66,667.

Any mortgage remaining must be paid off from individual shares. If any still left over, it's split according to the initial percentage split.

Doesn't seem that complicated to me. Have I missed something?

DVardysShadow

Sheveko wrote: »

Yes, all three of us agree with you PasturesNew. The spanner in the works is our solicitor. She says it's not fair to the two who have made a deposit, but our figures suggest it is.

How do we convince her to use this formula, which is based on the selling price, rather than giving the deposits back first?

Your solicitor should be told quite plainly that as she is acting for all 3 of you, she is out of order to advise on fairness between you to the advantage or disadvantage of any of you. She is not acting for any of you individually, she is acting for you 'joint and severally'.

She should get on and implement the agreement she is told to implement.

DVardysShadow

PasturesNew wrote: »

You have to calculate it based on 1/3rds of the selling price. If you sold it next week for the same price as you bought it for, you should end up with £40k in your pocket and the 3rd person with nothing.

So, current price is £250,000. 1/3rd of that is £83,333. Put that into your "pot", settle your mortgage portion and you walk with your deposit. Same for B ... and when it comes to person C their mortgage pot = sales price so they walk with £0.

If you sell it for £500k, 1/3rd of that is £166k, so you pay off your mortgage and walk away with £83k + £40k. Person C takes £166k but has a mortgage of £83k to pay off, so walks with £83k.

Not sure I put that into English ..... but:
- divide selling price by 3
- each settle your portion of the mortgage (25/25/50) individually from your 1/3rd

I agree with this. Effectively, each of you is putting up the money for 1/3 of the property. 2 are doing this with their own cash in part and from the mortgage in part and 1 is doing this from the mortgage in full. The difference is purely a matter of some money being owned outright and some being rented.

Difficulties arise where the shares are not composed equally if the property has to be sold at a loss against the original purchase. As I see it and as you explain it, losses will be borne equally by the partners. The problem which arises is that the 2 who bring cash to the deal will not get their cash returned in full, but the one who brings no cash will have to stump up some more. Provided this is understood and the 3rd person will cough up if there is a sale, then this is a non issue.

Generali wrote: »

There isn't going to be a way to do this that is both simple and fair because at different points in time, different people will have paid in different amounts.

My solution would be thus.

X puts in £40,000 deposit and borrows £43k
Y puts in £40,000 deposit and borrows £43k
Z borrows £40,000 'deposit' and borrows £43k

Using a spreadsheet you can work out how quickly Z is repaying the the deposit part of the mortgage. PM me if you want a mortgage repayment spreadsheet. When you sell, assuming you make a profit which isn't a given, X & Y should get their £40,000 back and Z should get back the part of the deposit loan that has been repaid. The remainder, after the mortgage has been repaid of course, should be split 3 ways.

You are making a meal of this. Doing it PasturesNew's way, the fact that the one with responsibility for 50% of the mortgage has contributed most to paying down the mortgage will 'come out in the wash'.

If each pays their share of the remaining mortgage according to the original 25/25/50 proportions, then Z will naturally and rightly pocket 50% of the reduction in the mortgage amount outstanding.