Why you should think twice before buying a home with a friend.
It seems like the perfect opportunity. Two or more people decide to pool their funds to purchase a property. Whether that will be for a property to live in or for investment this has the potential for great financial return. It also, unfortunately can have terrible repercussions.
A prudent real estate lawyer will ensure that some of the potential pitfalls can be avoided.
Who will be on title?
The parties should decide who will be on title. Perhaps for credit reasons or personal reasons a party may not want to be on title. If that is the case, for the party not on title. They must ensure they have taken steps to ensure they can preserve their interest in the property. For the purposes of the Ontario government. If you’re not on title. It’s not your home.
Consult with a real estate lawyer first regarding the issue of title.
How will you take ownership? Tenants in Common.
Typically, spouses or family members may take title in the form of joint tenants or tenants in common. Both options have very different consequences when it comes to estate law. For the most part if you are purchasing with a friend, acquaintance or a stranger through some on-line site. The parties must ascertain what percentage of shares each party will have in the home.
Personal Issues
Ensure that the purchasers don’t have any personal issues that can affect the new property to be purchased. For example, if one of the purchases is married. Their spouse may have an interest in the home. If the parties split up. They could end up contesting their share in family court.
Another issue that could happen is if one of the purchasers ends up running into financial issues. For example, they are sued or end up having a civil judgement rendered against them. The party with the judgment may decide to place a lien on the property. As such, the party not affected is suddenly faced with a home that has a lien registered that becomes their responsibility as well.
There are many potential personal issues that can seriously affect a joint venture for the purchase of a home. Ensure you speak with a real estate lawyer first before embarking on such a transaction.
Who gets to sell?
One of the biggest issues ends up being who gets to sell? What if one party wants to sell the property for whatever reason. Perhaps they need money. The other party may not want to sell. Without any formal written agreement prior to, no party can exercise any rights for the sale without the other. In some scenarios one party may state they wish to retain ownership and will pay the other out. In those cases, ascertaining the value of the home may be contested. As the party looking to pay out will obviously assign a lower value to the home.
For the reasons above its very important to think twice before getting together with folks and purchasing a property. It’s strongly recommended that the parties speak with a real estate lawyer first.
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