Buying a House Together When You're Not Married? A Lawyer Explains Why It's One of the Worst Financial Moves You Can Make

"Barry," a reader in Reno, Nevada, was "losing hair over this," he said on a phone call describing the mess he and his former fiancée are in.

"Five years ago, planning to be married, 'Christy' and I bought a home with acreage in the country. But I admit I was a jerk and kept putting off marriage until she grew tired of my excuses, so we broke up. Both of our names are on the deeds, but only my name is on the loan, and she will not agree on a sales price.

"I paid for an appraisal and was given an asking price far higher than Christy got from a lending institution. I then spoke with a lawyer who said that the courts will not generally get involved in situations like this involving unmarried couples. Why, Mr. Beaver, to both questions?"

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Barry needed to understand why marriage solves these problems.

Ownership and the loan are completely separate

Without a written agreement on how property will be dealt with in the event of a breakup, if only one partner signs the mortgage, that partner alone is legally responsible for the entire loan. This is true even if both verbally agree to split payments and do so. It's also true even if both names are on the deed.

Meanwhile, the partner not on the loan has full ownership rights, with no obligation to make payments, because their name is on the deed. "True love" often creates the worst possible mismatch of rights and responsibilities.

Do not look to the courts for help

Unlike married couples who have divorce courts to divide property, in most jurisdictions, unmarried couples do not. I can't begin to count the number of times I've heard, "It feels like I am drowning," when the person on the loan realizes they:

• Cannot force their ex to refinance
• Cannot force them to sell
• Cannot force them to move out

Their only option is to retain counsel and file a partition action, at substantial legal expense.

The ultimate in getting even?

No one wants to feel used or misled, so anyone who commits to marriage and then keeps pushing back the date may have a certain karma coming.

When both names are on the title, both parties must agree to sell the property. That gives one partner the opportunity to block the sale just by being unreasonable.

Christy can remain in the house and even stop making half of the mortgage payment. Unless Barry makes the full payment, his credit would be at risk, while no damage is done to hers.

That said, if both were to stop making payments, this would result in a foreclosure. The property would be taken over by the lending institution, which might negotiate a rental agreement with the occupant — Christy — or simply evict her.

Going a step further, unmarried couples, in my experience, never give a second thought to what happens if one of them dies. Here's what can result:

• Without a will or trust, the surviving partner may inherit nothing
• The deceased partner's family may inherit their share of the house
• The survivor may suddenly co-own the home with the deceased partner's family
• The lender may demand a refinance the survivor will not qualify for and lose the house

Asking price can be a huge struggle

Agreeing on an asking price can create another struggle, as Barry is learning.

I asked real estate appraiser Atom Levi, of A.L. Appraisal Co. in Sacramento, California, who has both MAI and SRA professional appraisal designations, to explain the difference in asking prices.

"They serve different purposes," he told me. "A lender's appraisal is conservative, intended to protect its collateral and answers one question: 'Is this property safe security for our loan?'

"Lenders often use automated valuation models (AVMs) or desktop appraisals when possible. These rely on public data, which can miss nuances such as upgrades, views or micro market trends.

"However, a private appraisal (the one Barry obtained) is designed to tell us: 'What is the property actually worth in the current market?' Independent appraisers work for the homeowner, not the lender, conducting a deeper analysis with a physical inspection, verifying square footage, evaluating comparable sales and considering neighborhood trends more deeply."

How not to become a 'Barry'

Buying a home together before marriage may seem romantic, but it is not. It is a business partnership, and without legal protections, the consequences can be financially and emotionally devastating.

Any couple considering this dance around land mines needs either:

• A written cohabitation/property agreement, or
• A registered domestic partnership, depending on where you live

I advised Barry to retain a real estate attorney, or he may never awaken from the nightmare he created for himself by being a self-admitted jerk.

Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.

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