Realty Reaction

The vast majority of houses are either solely owned by individuals or jointly owned by married couples.

But with a surge of unorthodox living arrangements in the 1970s came a new variety of ownership arrangements among unrelated individuals sharing the same principal residence or vacation home. Single people living as couples or just groups of friends wanted the advantages of homeownership, too.

Many lenders are still cool to such arrangements, but some are not.

There are proper ways to go about buying property jointly with relatives or unrelated friends, the two most common being tenancy in common and partnership. A good real estate attorney can explain them to you.

Owning in a group can create problems. When a tenancy-incommon ownership share changes hands, the lender may declare the loan due. The only recourse, if you don’t want to sell the property, is to refinance.

Setting up a general partnership to own the place can head off many of those problems by anticipating and dealing with them in the partnership agreement. Use your lawyer to draw up the agreement.

Make sure the partnership agreement addresses the following points:

• How ownership will be divided, which in tum determines who pays how much of the down payment, monthly payment, maintenance and repairs. The contract should also describe how any profits or losses from rent or sale of the place will be divided and how tax benefits will be distributed.
• How use of the house’s space is to be divided.
• What constitutes a deciding vote and under what circumstances such a vote is considered necessary.
• Which owner will act as managing partner and thus be responsible for signing checks and paying routine expenses.
• How much advance notice a withdrawing partner must give and how the buyout price will be set.

A partnership may also protect the existing mortgage when a new owner enters the picture if the lender agrees that it is an interest in the partnership-not an interest in the property-that is being transferred.

Ideally, a general partnership should try to find a lender who is willing to limit each partner’s liability on the loan to his or her respective percentage of ownership, even though such agreements are unusual. Otherwise, each partner is responsible for 100% of the loan, so a lender could single out any partner to sue for the money if there’s a default, instead of going through complicated foreclosure proceedings. Regardless of this protection, you’ll want to be confident that each member of the buying group is financially responsible, creditworthy and stable in his or her career.

The legal and financial techniques associated with ownership by unrelated individuals are just the beginning of your consideration of this issue.

Just as important, or even more so, is compatibility of lifestyle and the prospects of a durable friendship among all involved. As for investment value, keep in mind that partnership interests in a commonly owned house are not highly liquid. To get full value for anyone’s share, the group may have to sell the whole house.

There are a lot of obstacles to overcome in such an arrangement, but with careful planning and thoughtfulness among friends, it can work out well both socially and financially.