Loan Modification

Unmarried Co-borrowers Need Protection

By Gina Pogol

FHA doesn’t require that co-borrowers be married to get a mortgage, of course. But if you buy a house with an investment partner, relative, friend, or the cute guy you met at last week’s rave, you don’t have the automatic protection that marriage confers on home ownership. About 10% of homes are purchased this way, but many who do so fail to arrange legal protection of their interests. And that’s a mistake.

Most property ownership provisions are enacted and enforced by states. So laws are different depending on your property’s location.

Some states do grant expanded rights to unmarried couples and others allow couples to be considered married for legal purposes if they meet certain conditions. This is called common law marriage and is recognized in the following states:

* Alabama
* Colorado
* District of Columbia
* Iowa
* Kansas
* Montana
* New Hampshire (for inheritance purposes only)
* Oklahoma
* Pennsylvania
* Rhode Island
* South Carolina
* Texas
* Utah

You must meet all of these conditions to be legally protected as a married couple in those states:

* heterosexual couple, living together for a “significant” period of time
* present yourselves as a married couple — referring to the other as “my husband” or “my wife”
* filing a joint tax return, and
* intend to be married.

In many states there is nothing on the books to prevent lenders from discriminating against unmarried partners. Unmarried couples and especially same-sex partners may encounter prejudice. There are even states where co-habitation by unmarried couples is still illegal in five states! Not that it’s enforced, but still….

FHA lenders, unlike some others, do not require that each partner qualify separately for the loan. Other lenders can do this; even if you and your partner together earn enough to support the mortgage, you may not each earn enough to qualify alone.

However, you may face ownership issues in the event of the death of one co-borrower or the dissolution of your partnership. Before purchasing property together, you need an agreement (a business agreement for investment partners or a domestic agreement for cohabiting home buyers). This protects your interest and the interest of your heirs.

How You Take Title Matters

Owning a home as Joint Tenants with Rights of Survivorship or under joint ownership is usual for married couples, but it may not be the best option for you. It doesn’t  allow your partner to sell his or her interest in the property or leave it to anyone other than you (which is a concern for people with heirs other than their co-homeowners. However, does make transferring the property title upon a death easier, and lets you dodge inheritance taxes. You may want to ask an attorney about taking title as tenants in common as this will allow you to bequeath your share of the home to anyone.

Don’t Skimp on Legal Advice

Yes, you can Google this stuff and buy contracts from a stationery store, but it’s much smarter to spend a few hundred bucks and get a real estate, contract, or estate planning lawyer to draft your agreements and sort out title issues. You won’t be sorry.

Full post as published by FHA Mortgage Guide on June 02, 2010 (boomark / email).