The fastest-growing technique used by singles and couples to buy affordable houses -- known as "co-purchasing" -- could be your solution to today's steep prices and double-digit mortgage rates. But it could also be a quick way to a messy lawsuit or foreclosure.
Realtors and attorneys in cities across the United States report that a large number of unrelated singles, couples and groups of up to four individuals are jointly buying condominiums and houses.
Portions of entire housing developments are now being designed and sold to the co-purchase" market -- typically younger, white-collar workers who buy and share urban town houses and condos they couldn't otherwise afford.
Forty-four out of the first 10 units in the Windgate of Arlington town house condo project in Arlington, Va., for example, were sold to unmarried co-purchasers who split down payments and the monthly mortgage costs. One-half of the units in a condominium under construction in suburban Glendale outside Los Angeles are specially designed for cohabitation by unrelated co-owners, with master bedroom suites at opposite ends of each apartment, separated by shared kitchen, dining and living areas.
Attorneys and real estate brokers here in the Bay Area say 1980's surging interest rates are producing a bumper crop of co-purchase deals in the city and the suburbs. But the same real estate professionals warn that too many of the singles and couples plunging into these arrangements are ignoring the legal pitfalls of co-purchasing, and could be headed for big trouble in the coming years.
Penny Lewis, a Concord, Calif., broker who specializes in creative financing techniques for first-time home buyers, says she has been amazed at how many "singles, doubles, threes and fours are buying condominiums without protecting themselves with detailed legal agreements" at the time of sales contract.
The agreements, which should be carefully drawn by an attorney representing the purchasers, spell out the co-owners' responsibilities to each other, and document precisely who paid what and who owns what.
One unmarried couple who purchased a home recently in Walnut Creek, Calif., failed to draft an adequate side agreement setting out their individual contributions and rights in the real estate, Lewis said, "and now they're very unhappy. They were in love when they bought the house, and the woman didn't give a thought to the possibility that they'd ever break up."
But they did, says Lewis, and somehow the woman's contribution to the down payment -- which the woman insists she gave in cash to her boyfriend co-purchaser -- never was recorded. The man signed the check for the entire down payment, and he says it was all his money -- which dramatically reduces the woman's prospective share in the equity. They've been in court over it for months.
Harry Miller, whose Oakland law firm is legal counsel to five boards of Realtors in the Bay Area, says the risk in this kind of home purchase "is creating disputes between former friends and partners like you'd never believe. c
"It's cats and dogs when one or more of the people on the mortgage stop paying their share, or suddenly decide to sell their equity, but don't have carefully drafted agreements in advance."
Miller offers this advice for anybody contemplating buying a condo or house with a non-relative:
Make certain your sales contract and deed specify your co-ownership relationship as "tenants-in-common." This gives you legal title to a definite portion of the property -- to be specified by you -- that can be sold whenever you choose, or passed on to heirs in your will.
Ask your lawyer to draft you and your partners an agreement that covers every "worst case" scenario you can imagine, from mortgage payment defaults by one buyer to a forced sale caused by incompatibility or employment relocation.
Have your attorney build in advance solutions to common problems in joint-purchase arrangements. To avoid unnecessary strife or litigation regarding sales of equity shares, include a "first-right-of-refusal" clause requiring each co-owner to offer his or her share to any other joint owner before offering it for sale to the public. Specify in the agreement that if one partner misses mortgage payments for any reason, his or her equity share will be reduced by the dollar amount borne by the other co-purchasers.
In general, treat any joint purchase as a business proposition -- with all the attendant, unavoidable risks of business rifts over expenses and profits -- however emotionally involved you may be with the person who's going to be on the other side of the mortgage.