When single people join forces to buy property, problems can crop up

There are already plenty of hurdles between deciding to buy a house and moving into the place. For a single individual or a married couple, however, most of those hurdles go over fairly predictable territory through applications, credit checks, appraisals, inspections, closings, and change of address forms. But when two or more single people decide to buy a house or condominium together, there are some extra hurdles that have to be faced.

What happens if one of the people gets relocated, gets married, or just gets angry and moves out? Who's responsible for continuing the payments? When the place is sold, how is the equity that has built up divided?

What if one person made more than half of the down payment, or even the full down payment, but both make equal monthly mortgage payments? Now what's the fairest way to split the equity?

Questions like these are coming up more often these days, particularly since higher real estate prices have forced many people to share the burden of buying a home.

``It's a relatively new phenomenon, but it's getting more and more prevalent,'' says Ralph Presutti, a financial planner with Advest Inc., a Hartford, Conn., brokerage. ``A couple of people may want to save on taxes and build equity, but neither of them can afford to buy a house on their own.''

These singles, he notes, can include people who have never been married, people who have been divorced or widowed, and people who may have children.

``But what happens if one of them loses their job, gets laid off? How do they handle it? These things should have been worked out beforehand,'' Mr. Presutti says.

Single men, he says, are traditionally as likely to purchase a home for investment and tax purposes as for shelter, while women are more apt to be looking primarily for shelter. But when either group sees what rising home prices can do, their attitudes quickly change. The investment part of the picture suddenly gets a lot bigger.

``When the numbers start to get really big, people have short memories'' about what they might have agreed to earlier, says Bruce Embry, a lawyer in Cambridge, Mass. ``You might be able to work out the division of $5,000 over the dinner table with a handshake. But when it gets to be $50,000, bells start going off in your head. Problems can occur, particularly in a rapidly escalating real estate market.''

If a lot of equity has built up in the house or condo, Mr. Embry says, and if the deal has not been completely 50-50 from the beginning, including the down payment, mortgage payments, and improvements, problems can develop when it's time to sell.

To help avoid problems, Embry says, ``think of it backwards'' before you buy. ``Let's assume we break up. What's going to happen? An agreement should be structured so the desired outcome is accomplished in the most efficient, least acrimonious way possible.''

The buyers might, for instance, agree that neither party can sell its share, force a sale, or be relieved of financial obligation for two or three years.

``You can change your life, but why should my life be turned completely inside out because of a change in you?'' he asks.

There have been many cases, Embry says, where two people have made verbal agreements to split the proceeds of a home sale down the middle and have honored those agreements. ``Most of the cases would go fine without a [written] agreement,'' he acknowledges. ``But you don't know you need an agreement until you disagree.''

Another issue concerns how the property is to be held, whether joint tenancy or tenancy in common.

``It's all reflective of the nature of the intimacy of the relationship,'' Embry says. If the two people are unmarried but somehow related - sisters, for instance - they may want the property to be inherited by the other owner if the one should die. Then, joint tenacy would be used.

But if either owner wants his or her share of the property to go to other heirs, then tenancy in common would be the appropriate choice. This might be better for the surviving owner, he points out, since they would not suddenly have to bear the full financial obligation of the property.

As far as most lenders are concerned, it doesn't really matter if the people buying the house are married or not. If both incomes are needed to make the monthly mortgage payments, then the employment histories, credit records, and incomes of both people will be checked.

Once the buyers sign the note, or mortgage agreement, they're both required to meet their share of the debt, whether or not they stay together.

``Once they both sign that note, they are legally responsible for paying it,'' says a spokesman for Maryland National Bank in Baltimore.

If one person leaves, a bank may allow a new co-owner to take over the mortgage, says Monica Wiley, spokeswoman at Home Federal Savings and Loan in San Diego. ``The new second party would have to be qualified,'' going through the employment, income, and credit verification process.

If all of this sounds complicated, remember that many others - and their lawyers - have gone through this and worked out comfortable agreements beforehand. ``People should not think of themselves as strange or unique in doing these things,'' Embry says.

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