Tenants in common help

star_sign · 3 February 2010 at 1:21PM

I was hoping someone might be able to help me. I have googled but still remain a bit confused.

How does a tenants in common agreement work if the split is 99/1 in terms of liability for mortgage repayments? Someone has asked me to help them this way with buying a property as their own income doesn’t meet the criteria for the mortgage. I would therefore own 1% of the property but according to this person, be 50% liable for their mortgage repayments. Is this correct?

This person would obviously pay all their repayments and there is a lot of trust between us, but I am still worried as to what happens if for one reason or another circumstances change and they can’t meet the repayments. Would I then be liable to take care of them?

Also, is it possible to have tenants in common agreement on a fixed term basis? How easy is it for me to get out of this agreement should I wish to? My only interest here is to help but I don't want to get myself into any financial trouble by doing so.

Thank you in advance!

phlash · 3 February 2010 at 1:47PM

If you take out a whole of house mortgage then you are jointly liable. Even if at first he pays all of it, under your friendship agreement, should his income cease you would be liable for 100% of it, not just 50% or 1%.

TICs can sometimes be financed under your own share of the house. i.e. In this case you could get a mortgage on your 1% and he could get a mortgage on his 99%. Obviously this smashes through the reason for the planning, which is to get your income into the equation in order to increase your friends borrowing capacity - which this solution doesn't.

The other option, is for you to be a guarantor, but you would be presumably guarenteeing your own house against his mortgage.

This is barge pole territory! I have a TIC, but we own equal shares of house. Why would you sign up to the full mortgage exposure, when you own 1% of the house?

star_sign · 3 February 2010 at 2:01PM

Thank you for your response, phlash.

The person I would be helping already has a mortgage but in oder to transfer it from one property to another, needs to show that they have sufficient income. I would not be taking a mortgage myself, nor would I be moving into this house - the 1% would be transferred to my name so that the mortgage could be transferred by using my income. So my role would be just to help with the transfer and for the ownership and the mortgage to be moved to their name, 100% upon remortgaging in a few months.

I definitely don't want to be a guarantor. I am confused as to how would I be liable for 50% of the mortgage if I only owned 1% of the house. I am happy to help but want to secure myself financially first, hence I am wondering if it's possible to have an end date to this kind of an agreement or alternatively, how easy is it to get out of it?

Fire_Fox · 3 February 2010 at 2:10PM

It is unlikely the lender will agree to their being a second charge on the property without you being named on the mortgage. You would not be liable for 50% of the mortgage you would be each liable for 100% of the mortgage, yet you would own 1% of the house? You cannot act as security on the mortgage without taking on a massive risk which it would be very difficult to extricate yourself from. Don't even try to understand it run away as fast as your little legs will carry you.

duncan303 · 3 February 2010 at 2:12PM

If any number of parties take a loan out secured against property each party signiatory to the loan will be "jointly and severally liable" for the whole loan. Furthermore they will tend to go for the easiest target to secure the monies in the case of any default.

Be warned.

..

phlash · 3 February 2010 at 2:23PM

It's simple - If you definitely don't want to be a guarantor then you also definitely do not want own 1% and be liable for 100% of the mortgage as advised quite rightly above.

If the mortgage is relying on your income, by virtue of your 1% holding, then you are liable 100%!! Why would a mortgage lender take into account your income, if they had no charge over you and you weren't liable?

This sounds like a plan sketched out in the pub, and it would be worth leaving it there.

duncan303 · 3 February 2010 at 2:24PM

Furthermore I might consider using the wonderful flexibility of the trust known as tenants in common. you could consider creating a condition to the share ownership in the case of any type of default.

If he goes into default you have the option to reverse share ownership. That would force him to continue to act as a "friend". If he goes into default you should certainly become the only legal owner and he should become a beneficial owner only, this mechanism would give you the right to sell without his permission.

You should see this as "business only".......... or I can forsee trouble ahead.

..

sequence · 3 February 2010 at 2:46PM

Hey, why don't you give me £99 and I'll give you a quid back

I need to prove my income....

star_sign · 3 February 2010 at 3:01PM

Thanks everyone for your replies, this is pretty much confirming what I would have guessed - it doesn't sound very different from guaranteeing a mortgage really, apart from the 1% ownership. In terms of liability, it sounds to me to be pretty much the same.

I agree with the keeping this 'business only' and have no intention for going by anything other than what is in the agreement. I guess there is no way to ensure he would take it all in his name after a few months, other than a verbal agreement, which won't be good enough.

Thanks duncan303 for the suggestion of adding a condition of reversed share ownership. I hadn't even thought of that. I will definitely consider this further.

Richard_Webster · 3 February 2010 at 3:34PM

1. If mortgage lender is taking OP's income into account he must be a joint borrower and therefore the property has to be held jointly.

2. Any trust between OP and friend is only effective as between the two of them and does not bind third parties such as a mortgage lender so both OP and friend would be 100% liable for the mortgage payments and could then seek to recover the appropriate proportion from the other (if he has any assets and can be found).

3. Duncan303 has suggested that the proportions would be reversed if there were to be a default by the friend. The trust deed could say that but it could only require the transfer of the property to OP in the event of such default - it would not automatically effect it.

To sell the jointly owned property the friend's signature would still be needed and he could use this as a bargaining counter. If he had disappeared to the other end of the earth he could communicate the fact that he might sign if he got £X thousand and OP would have the alternative of spending a lot of money going to court so he could eventually dispense with the signature.

If there was a default even though the trust deed would require it, the friend could refuse to sign such a transfer to put the property legally solely in OP's name and OK, OP could go to court to enforce the terms of the trust deed but that would be expensive and not something you would have time to do if you were trying to sell the place.

star_sign · 3 February 2010 at 5:01PM

Thank you Richard for your clear and helpful answer.

I think I know what I need to do now. Thanks again everyone for your help

Tenants in common help

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