When Co-Ownership Doesn’t Work Out, Who’s On The Hook?

If you are already part of a co-ownership deal that has gone bad, or if you are researching what happens when co-ownership doesn’t work out, this article is for you.

This is the third installment of our series on co-ownership of property. If this is your first time on our blog and you are not experienced with co-ownership, this may be a little technical. In that case, you may benefit from first reading about co-ownership basics or co-ownership with friends first.

Refer To Your Agreement For Guidance When Co-Ownership Doesn’t Work Out

In many ways, all owners are impacted by the decisions of all the owners. That is why it is essential to have a co-ownership agreement, particularly when the co-owners are platonic friends who plan to live together in the same residence or under the same structures. This will be the first thing parties will reference to support their position in a dispute that has escalated beyond friendly territory.

A well-drafted agreement will include clauses to handle typical disagreements without legal action. It may also include an arbitration clause identifying a resolution for when co-ownership doesn’t work out. Again, this is faster and cheaper than traditional litigation.

Friends living together that are in dispute over usage of the building’s structures may also wish to consult their local bylaws for assistance in determining who is correct.

If the co-owner is a spouse, not a friend or extended family member, you may want to check your prenuptial agreement if you have one. Otherwise, your dispute over the real estate with your co-owning spouse will presumably be covered by divorce or family law, and you should speak to a lawyer.

If the co-owners are extended family or friends who live together under the same structures, and they cannot settle their dispute using words, the co-ownership agreement or arbitration, they could consider litigation.

Is Litigation An Option When Co-Ownership Doesn’t Work Out?

It is costly to hire a lawyer to ask a judge to settle your contract or personal tort dispute. It would also probably take years to do, with no resolution in the meantime. The more realistic solution is that one or both parties will be forced to list the house for sale.

The co-ownership agreement may include a right of first refusal. This right allows one party to force the other to sell to them instead of on the open market. But, of course, that would require the purchaser to have the down payment or equity available and a willing bank lender.

If the co-ownership was established to lend credit to a friend or family member, and the co-owners do not live under the same structures, the dispute is much more likely to be financial. There is a greater possibility of litigation in a situation where huge debts have been accumulated against the co-owned property.

When A Co-Owner Misses Payments, What Are Our Options?

The structure of your co-ownership will determine what happens if someone misses mortgage, tax, utility, or other payments. If there is no co-ownership agreement, all co-owners are on the hook to bring the accounts back in good standing for the property. If this is not possible or justifiable, the best solution is to list the property for sale and move on. If you do not, the property may eventually be seized and resold without your consent by creditors. Some types of debts may also qualify for a lien against the property.

If there is a co-ownership agreement and separate co-ownership mortgages on the different residences that make up the structure of the building, then the other co-owners may not be liable for their co-owners’ missed payments. In that scenario, only the defaulting co-owner needs to sell their share. Check your agreement for a right of first refusal and regulations regarding the voluntary resale of your share.

If you are looking to get a co-ownership mortgage, contact The Mortgage Group Inc in Calgary now at (403)571-8142.