commensurate share deed

ro2778

Tom99 wrote: »

[FONT=Verdana, sans-serif]I still don't think its right as you are basing Owner 2's equity on the amount of capital mortgage they have repaid rather than the total mortgage they are supporting.

[/FONT] [FONT=Verdana, sans-serif]Put in an unrealistic sale price of £657,990 after one month (100% increase). You would expect Owner 1 to get back about £328,995 and Owner 2 about £328,995 less mortgage of £164,054 so £164,941. But your formula would only give owner 2 £1,329.


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I was thinking about this again but in reverse. Let’s say the house costs 100k and A puts in 50k deposit and B takes out a 50k mortgage. Then on day 2 they sell for 50k because the property value crashed. The mortgage is repaid first and then A loses all their money whereas B loses nothing. By your logic A should get 25k and B should pay 25k but where does B get that 25k? So the reason A gets all the money, if the house price doubles on day 2 is because A is taking all the risk. I can therefore still see an argument for the equation in this spreadsheet even though at first it seems odd.

Tom99

ro2778 wrote: »

I was thinking about this again but in reverse. Let’s say the house costs 100k and A puts in 50k deposit and B takes out a 50k mortgage. Then on day 2 they sell for 50k because the property value crashed. The mortgage is repaid first and then A loses all their money whereas B loses nothing. By your logic A should get 25k and B should pay 25k but where does B get that 25k? So the reason A gets all the money, if the house price doubles on day 2 is because A is taking all the risk. I can therefore still see an argument for the equation in this spreadsheet even though at first it seems odd.

[FONT=Verdana, sans-serif]Yes A is acting as guarantor to B but guarantors do not normally expect to acquire any equity.[/FONT]

steampowered

ro2778 wrote: »

Let!!!8217;s say the house costs 100k and A puts in 50k deposit and B takes out a 50k mortgage. Then on day 2 they sell for 50k because the property value crashed. The mortgage is repaid first and then A loses all their money whereas B loses nothing. By your logic A should get 25k and B should pay 25k but where does B get that 25k? So the reason A gets all the money, if the house price doubles on day 2 is because A is taking all the risk. I can therefore still see an argument for the equation in this spreadsheet even though at first it seems odd.

The wording in bold is why your example falls down.

It is impossible for B to be the only person who takes out the mortgage.

Mortgages are joint and several debts. No bank will lend against a 50% interest in a property.

The mortgage will have to be in joint names. The mortgage will be A's debt just as much as it is B's debt.

Of course, if the property is sold on day 2, all of the equity will go to person A since nobody has made any mortgage payments.

But if the property is sold after a couple of months, then unless there is a written agreement to the contrary, the law splits the equity in the property taking into account both A's contribution to the deposit and the relative mortgage repayments made by A and B.

steampowered

Tom99 wrote: »

[FONT=Verdana, sans-serif]Yes A is acting as guarantor to B but guarantors do not normally expect to acquire any equity.[/FONT]

Banks will always expect a mortgage to be in joint names. The mortgage will be secured in full against the entire property.

It simply not possible to have a situation where A is merely a "guarantor" of the mortgage.

A will be a named party on the mortgage. The debt will be A's debt and will be secured against A's share of the property, just as much as it is B's debt secured against B's share of the property.

You could in theory have an agreement between A and B under which B agrees to fund all of the mortgage repayments, but that agreement would be of no concern to the bank.

getmore4less

ro2778 wrote: »

I was thinking about this again but in reverse. Let’s say the house costs 100k and A puts in 50k deposit and B takes out a 50k mortgage. Then on day 2 they sell for 50k because the property value crashed. The mortgage is repaid first and then A loses all their money whereas B loses nothing. By your logic A should get 25k and B should pay 25k but where does B get that 25k? So the reason A gets all the money, if the house price doubles on day 2 is because A is taking all the risk. I can therefore still see an argument for the equation in this spreadsheet even though at first it seems odd.

You end up in a situation where B owes A £25k.
even if you do it with a loan and both pay the joint mortgage you end up in the same situation.

Tom99

steampowered wrote: »

You could in theory have an agreement between A and B under which B agrees to fund all of the mortgage repayments, but that agreement would be of no concern to the bank.

[FONT=Verdana, sans-serif]That would be the Deed of Trust which would say B pays all mortgage each month and is responsible for redeeming it on sale.

[/FONT] [FONT=Verdana, sans-serif]So the net effect of mortgage + DOT is that A is guaranteeing B will pay up and as getmore4less says above B will owe A £25k just like when any other guarantor has had to pay out.[/FONT]

getmore4less

ro2778 wrote: »

I was thinking about this again but in reverse. Let’s say the house costs 100k and A puts in 50k deposit and B takes out a 50k mortgage. Then on day 2 they sell for 50k because the property value crashed. The mortgage is repaid first and then A loses all their money whereas B loses nothing. By your logic A should get 25k and B should pay 25k but where does B get that 25k? So the reason A gets all the money, if the house price doubles on day 2 is because A is taking all the risk. I can therefore still see an argument for the equation in this spreadsheet even though at first it seems odd.

Remember that the starting point includes all costs to buy and the end is net proceeds from sale.

That is likely to be a minimum of £1k buying and 1% selling.

If you use the B gets/loses nothing if they paid nothing servicing their debt model then A(pays all/more deposit/costs) takes the hit on all/more costs day one.