Deed of trust - legally enforceable?

getmore4less

Often the best way is to separate equity from debt, this confuses a lot of people because of the way mortgages work and they think that's the way they have to do the numbers.

It is very easy to balance an unequal deposit by the lesser servicing more of the debt so the owned equity is 50:50.

You then split the full proceeds 50:50 and pay of the share of the debt from that.

Any algorithm should work for every value of the various inputs and the one described above does, most others fail.

It is also very easy to document.

Also it does not need intermediate valuations if one party overpays the debt more than another, what they own stays the same what they owe changes.

getmore4less

adonis10 wrote: »

Interested in the opinions in this thread as we are currently in a similar situation. A tad different as the deposit is being paid in the ratio of 88:12 me : partner, and we've decided that the mortgage payments are going to be around 40:60 (slightly arbitrary figure but one we're happy with). The reason for this is the massive amount extra I'm putting in and the fact that partner earns a few k more than I do. Bills are going to be 50:50, as will all renovation and decorative work, furniture etc.


This obviously raises some issues, the main one being how do we decide who gets what if the unfortunate happened and we split. Well, I happen to think that it isn't that difficult a calculation; let's say (it won't, but for an easy example) that the property sells for the same as we paid for it 3 years down the line; after all fees etc. I take back my deposit, she takes hers and the balance is split 40:60. Seems logical?


In the event that it sells for less/more we would have to work out how much of the mortgage has been paid (start mortgage less balance at sale date) and then split that 40:60, and the remainder is the deposit that we put down +/- any increase/decrease in equity. I guess this is where the issue would arise - would we split that 50:50, 40:60 or 88:12?! If it has increased in value due to works we've done, it'd be 50:50 in my eyes as we'd have paid for that equally. If it is market forces pushing it up or down, this is more difficult. The 88:12 option would greatly benefit the former in the event of a price increase and the opposite in the event of the decrease. I think this is the most tricky area and so I feel 50:50 is the most fair way to calculate it.


Any thoughts?

If you want to own 50:50 then adjust the debt repayments to match.(forget it is one loan for now think of it as two loans)

depending on the numbers it won't need to be arbitrary.

Then you can deal with the house and equity 50:50, all maintenance improvements etc are always 50:50, running costs keep separate.

a useful way to think of this is as owners/landord anything a landord would be responsible for is part of owning and split 50:50

then think of yourselves as tenant all his stuff is just living costs and never gets include as part of owning.

Now you have the debt, you effectively have two different loans although this will be one from a single lender treat it as two.

As it happens if you just keep paying in at the same same starting % it just works, but if you pay differently you need to do some reclacs but this is easy.


Now the exit senario.

you own the house 50:50 sothe net proceeds before paying back the debt are split 50:50, then you pay off the share of the debt and you are all good.

That works for every value of deposit and debt servicing and overpayments as long as you keep the money into the property 50:50

By fixing the equity share at the start and not changing it it makes life a lot easier.

Can't pay/won't pay becomes a debt issue not an equity one unless it goes on and it becomes clear there is not enough left to not have a debt overhang.

The one walks out one stays scenario goes back to the landlord tenant split,

The walk out continues to pay the their debt/and landlord type costs but gets 50% of market rent.
The one who stays can sublet the space but gets to keep the income.

You then have the other exit scenario to consider like death.


The other way to do the initial split that a lot use is the get your deposit back which is a interest free loan to the other person.
Some like that method but is not equitable and can cause issues for large changes in value.

a combination of the two could solve your how to split the profit loss if you can split the debt to get exactly 50:50

adonis10

getmore4less wrote: »

If you want to own 50:50 then adjust the debt repayments to match.(forget it is one loan for now think of it as two loans)

depending on the numbers it won't need to be arbitrary.

Then you can deal with the house and equity 50:50, all maintenance improvements etc are always 50:50, running costs keep separate.

a useful way to think of this is as owners/landord anything a landord would be responsible for is part of owning and split 50:50

then think of yourselves as tenant all his stuff is just living costs and never gets include as part of owning.

Now you have the debt, you effectively have two different loans although this will be one from a single lender treat it as two.

As it happens if you just keep paying in at the same same starting % it just works, but if you pay differently you need to do some reclacs but this is easy.


Now the exit senario.

you own the house 50:50 sothe net proceeds before paying back the debt are split 50:50, then you pay off the share of the debt and you are all good.

That works for every value of deposit and debt servicing and overpayments as long as you keep the money into the property 50:50

By fixing the equity share at the start and not changing it it makes life a lot easier.

Can't pay/won't pay becomes a debt issue not an equity one unless it goes on and it becomes clear there is not enough left to not have a debt overhang.

The one walks out one stays scenario goes back to the landlord tenant split,

The walk out continues to pay the their debt/and landlord type costs but gets 50% of market rent.
The one who stays can sublet the space but gets to keep the income.

You then have the other exit scenario to consider like death.


The other way to do the initial split that a lot use is the get your deposit back which is a interest free loan to the other person.
Some like that method but is not equitable and can cause issues for large changes in value.

a combination of the two could solve your how to split the profit loss if you can split the debt to get exactly 50:50

I can see where you are coming from with this one. Just to ensure I am understanding it correctly, would you care to run your idea based on the following numbers?


Purchase price - 315k
Deposit A - 150k
Deposit B - 15k


It's actually 91%:9%, recently changed from 88:12.

pph

Guest101 wrote: »

Because you don't trust them to keep their word... It's a simple situation.


If you trust someone to be honest and stick to what they say. You don't require a bit of paper to confirm that.

You made that point above.

While I'm sure everyone agrees with you it isn't always cut and dry / black and white in all relationships - so can the ethics and morals of deeds of (miss?!)trust be left for another thread please

adonis10

pph wrote: »

You made that point above.

While I'm sure everyone agrees with you it isn't always cut and dry / black and white in all relationships - so can the ethics and morals of deeds of (miss?!)trust be left for another thread please

If you don't mind me asking, how are you planning to structure your DoT? Is it a case of A putting in £x and B £y towards the deposit and then splitting everything 50:50, or is it more unequal? I'm trying to work out the best option for my partner and I and it is providing difficult!

Guest101

pph wrote: »

You made that point above.

While I'm sure everyone agrees with you it isn't always cut and dry / black and white in all relationships - so can the ethics and morals of deeds of (miss?!)trust be left for another thread please

It's fine, I'm just making the point that (morals and ethics aside) - a deed of trust is basically (as in the reason it exists, in the base terms) a bit of paper which says I don't trust your word and want it written down.


What I think of your relationship (the grand 'your'; anyone's) is of no consequence since I'm just some guy on a forum

Linton

The deed seems like an excellent idea. To me, it doesnt imply a lack of personal trust. Rather it's better to have everything written down and agreed up front so that in the future someone forgetting the details or getting confused doesnt cause a breakdown in personal trust.

LittleMax

eddddy wrote: »

But perhaps all the arguments and bad feeling generated between couples whilst working out these details will mean they split up anyway, before they've bought the property. So perhaps the problem will solve itself.

The idea of working out a deed of trust at the beginning is that the couple are not arguing, they are planning to stay together forever and not need it. Therefore it will be an easy process and they will be being totally fair with each other.

It is only should something happen that they may need it. Surely no couple buys a property together thinking that the relationship won't last. But evidence shows that not all couples who buy together end up staying together. None of those thought they would be part of the statistic - but they are.

My partner and I had lived together for 6 years when we bought together. I put down most of the deposit and so we drew up a deed of trust. We moved house a couple of years ago, and over the years have had periods of time where each of us has been the highest earner and so now feel that 50:50 is perfectly acceptable. We therefore no longer have a deed of trust as it would just say 50:50. It is not to say we trust each other any more or any less. We have been together for 20 years and think we will be together forever - but who knows.

A deed of trust is a sensible document, that hopefully no couple will ever need. Unfortunately none of us are fortune tellers.

adonis10

LittleMax wrote: »

The idea of working out a deed of trust at the beginning is that the couple are not arguing, they are planning to stay together forever and not need it. Therefore it will be an easy process and they will be being totally fair with each other.

It is only should something happen that they may need it. Surely no couple buys a property together thinking that the relationship won't last. But evidence shows that not all couples who buy together end up staying together. None of those thought they would be part of the statistic - but they are.

My partner and I had lived together for 6 years when we bought together. I put down most of the deposit and so we drew up a deed of trust. We moved house a couple of years ago, and over the years have had periods of time where each of us has been the highest earner and so now feel that 50:50 is perfectly acceptable. We therefore no longer have a deed of trust as it would just say 50:50. It is not to say we trust each other any more or any less. We have been together for 20 years and think we will be together forever - but who knows.

A deed of trust is a sensible document, that hopefully no couple will ever need. Unfortunately none of us are fortune tellers.

What a rational post, quite a contrast to that of Guest101!


That aside, would you be in a position to offer advice on our situation? Don't feel obliged!


Deposit:


A - 150k
B - 15k


Mortgage payments:


A- 40%
B - 60%


Everything else:


50:50

Guest101

adonis10 wrote: »

What a rational post, quite a contrast to that of Guest101!


That aside, would you be in a position to offer advice on our situation? Don't feel obliged!


Deposit:


A - 150k
B - 15k


Mortgage payments:


A- 40%
B - 60%


Everything else:


50:50

No need for rudeness, I'm sorry you don't understand why deeds of trust exist. My view is perfectly rational and logical.