Institute for Divorce Financial Analysts™ (IDFA)
Real Estate

Co-buying a house not as rosy as the dream

Turning to property co-ownership in an expensive housing market can make a dream home affordable, but there can be risks that need to be addressed up front, Toronto real estate lawyer Patrick J. Aulis tells AdvocateDaily.com.

“You’re buying a house with a partner but you should ask yourself, 'Is this other person going to be responsible for helping to maintain the obligation to a mortgage company,'” he says.

“You have to ensure the other person is a dependable partner in meeting those responsibilities. If your partner lets you down for whatever reason — bad luck or a disagreement — you could suddenly find yourself facing a heavy debt.”

Aulis, founder of Aulis Law Firm Professional Corporation and North York Mediation, says it’s also important to ensure both parties are compatible cohabiters.

“You may need to compromise with someone, such as a parent, in order to buy the house you want. Ask yourself if you have a similar view of how the property is going to be used?

“You may want to put in a pool and the other person may want a large garden. Those differences of opinion are what’s most likely to cause problems,” he says.  

As well, Aulis says moving and renovations can be hard on relationships, and costly, so agreeing to any changes to the property ahead of time can alleviate the stress.

When it comes to purchasing a home with a parent, people may not think about having a written agreement in place, he says, but it’s necessary.

“There’s very little statutory protection that comes into play with a parent and child buying a house together. There are no equalization claims or possessory rights.

You want to have everything in writing.”

Aulis says clients who live alone sometimes ask about adding their children on title of a home.

“Somebody has told them that when the parent dies, it will pass onto the children automatically and they will save money on the probate fees that way,” he says.

After talking through the situation with clients, they usually change their minds because of the risks, Aulis says.

“You are now partners with your kids in owning that house. They may move in with a significant other you don’t like. In that situation, if problems arise, the children have the right to force the sale of your house. You might find yourself unable to purchase a replacement home,” he says.

As well, if the child is sued, the creditor could follow that name right into the house, Aulis says.

“You are not responsible for that person’s obligations, but if they own a piece of the house, you might be forced to sell your home to pay their debt.”

When the child has a life partner, co-buying a home with the parents gets even more complicated, Aulis says.

If money is being borrowed from an older generation to purchase the home, for example, you need to know for certain if it is a gift or a loan, he says.

“It’s a classic source of problems because if the relationship fails, mom and dad may say, ‘It wasn’t a gift and we need to be paid back.’”

Aulis advises having documentation in place to ensure there are no misunderstandings.

Other important legal matters to consider before co-buying your dream home include the legal rule of right of survivorship, he says.

“It states that if one of the owners dies, the other owns the house outright without any need for transfer.”

But this can get tricky if a person in a second romantic co-habitation partnership wants to leave his or her share of the home to children from the first relationship, he says.

“If you bought the house as joint tenants and a will says one’s share is going to the children, you’re creating a nasty litigation down the road to try to set aside the right of survivorship,” Aulis says.  

“The reality of co-buying your dream home isn’t always as rosy as the dream.”

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