Joint Ownership, or How to Break Into the Housing Market

With the market value of real estate in the stratosphere, many would-be-Buyers have found that the best way to buy real estate is together with others.  Sometimes these are family members, sometimes friends or romantic partners, and sometimes other investors. Joint ownership of property can be a profitable way to own real property, but it is very important that the purchase transaction be handled properly and that those buying together have agreed, in writing, on all of the terms and conditions of their ownership.

Unfortunately, and particularly in the case of a romantic relationship, joint Buyers do not always nail down all the details, and spell out all the terms of the transaction in writing.  This can lead to confusion and a dispute in the future.  

For example, it is important to memorialize which party is putting up the down payment and escrow costs, and if they are not being put up equally by the Buyers, then what is the agreement for repayment of the down payment to Buyer A?  Is Buyer A agreeing to receive a future credit back for the dollar amount deposited, or does Buyer A expect to receive a greater share of the property’s equity as it grows over time? The same issue arises with regard to who is to pay the mortgage payments, who is to pay the taxes, and who is to pay for maintenance and repairs.  It is very important to memorialize, in a contract to be signed by all of the Buyers, exactly who is paying for what, and what the ultimate repayment agreement is for the sums advanced. 

It may seem like an odd thing to think about when you are buying a property, but it is also important to have a discussion about how long the Buyers intend to hold the property, and what the process will be in the future for the sale or ultimate disposition of the property.  For example, if the Buyers are obtaining a bank loan to purchase the property, then all of the Buyers will be listed as borrowers. In the future, if one of the Buyers wants the other Buyers to buy out his or her interest in the property, then it’s important to know that the Buyer who is now selling his interest to the other Buyers, and so no longer has an ownership interest in the property, is still obligated under the loan to the bank.  An additional problem that can arise is that once a Grant Deed is recorded from the Buyer selling to the remaining Buyers, the bank most likely has the right to require the remaining Buyers to refinance the bank loan and pay off the original lender. That’s why it’s important at the beginning of the purchase to make sure that all the Buyers are on the same page with regard to how long they wish to hold the property, and what the process is going to be if only some of the Buyers want to sell their interest in the property.  

As with so many things in life, the most successful joint ownership experience is the one that is carefully thought out in the beginning, and memorialized in a contract before the parties purchase the property together.  Victoria has created dozens of Joint Ownership Agreements and works with clients to ensure that the clients’ expectations are met.

RECENT ISSUES…

Residential landlords need to pay attention to recent and prospective changes in the law.  As we have seen over the past couple of years, the idea that there should be additional controls imposed on landlords, due to a severe housing shortage in California, has been growing.  Recently, the Governor and the legislators agreed to move AB 1482 forward. This will prohibit a landlord from increasing the rent by more than 5% plus inflation annually. This Bill will not apply to housing built within the last 15 years.  The ordinance also provides that for tenants who have lived in the rental unit for more than a year, the Landlord must renew the Lease and cannot terminate a Lease except generally for some good cause, including but not limited to failure to pay rent, breach of the rental agreement, criminal activity and failure to give the Landlord access.  Stay tuned for further restrictions!

On another topic, one issue that has been popping up recently in residential real estate sales, is that Buyers are complaining that the selling agent has not advised the Buyers to obtain an inspection of the septic system.  Obviously, these complaints happen when the septic tank or leach field fails after close of escrow. It is clear that when buying a residence which uses a septic system, Buyers should always get an inspection of the septic system by an appropriate septic system contractor.