The Risks of Co-Ownership Agreements in Real Estate

Getting into a co-ownership agreement with your spouse, business partner, or friend might seem like a good idea, as it can reduce your mortgage burden and maintenance costs significantly.

But what happens if you want to sell the property and the co-owner disagrees with you? Or if the co-owner wants to rent out the property and you feel that it might not be a good idea? If and when it happens, you might regret your decision to get into a co-ownership agreement.

In this article, we take a look at three pitfalls associated with co-ownership agreements that you need to be aware of.

Limited Control over the Property

The biggest downside of a co-ownership agreement is that you and the other party own the property equally, which means neither of you has full control over it.

What it means is that if you want to rent out or sell the property, you can do so only after getting the other owner’s consent. The same rule applies to the other owner as well.

This might not be a problem as long as you and the other owner trust each other and are on the same page on how the property should be maintained. However, if and when you disagree with each other on something, it can turn into a stalemate – with neither of you being able to convince the other party on what needs to be done.

Let us assume that you own a vacation home with your brother. You want to rent it out, as you have recently lost your job and need the rental income to make ends meet until you find another job. Your brother, on the other hand, is reluctant to rent it out and wants to keep it for their personal use.

In the aforementioned scenario, your brother’s reluctance to rent out the property can lead to serious disagreements and affect your relationship with him. Even if they reluctantly agree to do so, they might hold it against you, which in turn can affect your relationship with him.

The Co-Owner Can Do What They Want with Their Share of the Property

This is one of the major pitfalls associated with a co-ownership agreement. The co-owner has the right to mortgage or even sell their ownership interest in the property as and when they want to.

Let us assume that your brother – who is the co-owner of your vacation home – has accumulated a lot of high-interest debt and desperately wants to pay it off. Since he does not have any savings or investments, he wants to sell his ownership interest in the property to pay off his debts.

In the aforementioned scenario, you only have two options. You can either buy him out and become the sole owner of the property or allow him to sell his ownership interest and enter into a co-ownership agreement with a complete stranger.

The Risk of Liens

If the co-owner of your property fails to repay a loan, fails to pay taxes, or gets sued by a third party, a lien could be placed on their ownership interest in the property.

The Risk of Incapacitation and Death

If the co-owner becomes incapacitated as a result of a serious injury or a medical condition, you still cannot make any decision about the property by yourself. Unless the co-owner has an estate plan which specifies who can act on their behalf in the event of their incapacitation, you might have no option but to file a petition with the court for the appointment of a guardian or executor.

It should be noted that the court-appointed guardian is required to act in the best interests of the party they are representing. So, there is no guarantee that they might agree with the decisions you make regarding the property.

Similarly, if the co-owner were to pass away, the co-owner’s heir or beneficiary might inherit it and you will be forced to share it with them – unless you have a joint tenancy with right of survivorship agreement, in which case you will be able to inherit the co-owner’s share.

Planning to Enter into a Co-ownership Agreement? Our Alabama Real Estate Attorneys Can Help You!

A co-ownership agreement can be beneficial in some ways, but it also has its own share of risks. With that said, it’s vital to consult with a prolific real estate attorney before you enter into a co-ownership agreement with someone.

The real estate lawyers at BHM Law Group have decades of experience and have provided personalized legal services to thousands of clients over the years. If you want to enter into a co-ownership agreement with someone or if you are already in a co-ownership agreement with someone and facing issues, we can provide you with the legal advice and guidance you need and protect your interests.

To talk to one of our experienced Birmingham, Alabama real estate lawyers, call us today at 205-994-0902 or contact us online and schedule a free consultation.


What to Watch for When Buying a Condo in Birmingham

If you’re getting ready to invest in the residential real estate market, you may be thinking about a condo instead of a single-family home. Buying a condo can have many advantages.

For example, condos are usually less expensive than single-family homes, often have many amenities included, cut down on the amount of time and money you have to dedicate to home maintenance, and may be located in central areas that feature access to transportation, dining, and entertainment.

Before you sign a purchase agreement, however, there are a few important things to pay attention to when buying a condo. Here’s a list of items to watch out for when buying a condo in Birmingham, Alabama.

Birmingham Real Estate Market Predictions

Before you buy anything in Birmingham, it’s important to think about your reason for buying and your objectives. Are you buying to invest? Are you buying a property for a rental? Are you purchasing a condo to live in and, if so, for how long do you plan to live within the condo?

If you’re buying something that you think you might sell in the near future, it’s smart to work with a real estate agent who can guide you through various market conditions in Birmingham, including rental market conditions if you’re going to rent the condo out. These predictions can inform where you buy and other specifications that may be important, such as condo size and amenities. 

HOAs Rules and Fees

One of the most important things to be on the lookout for when purchasing a condo is the condo association, or homeowners’ association (HOA). The HOA will undoubtedly require owners to pay a fee. This fee is likely variable and can be changed year-over-year or as needed by the HOA or when voted on by the board.

You should make sure that the fee—and any expected fee increases—fits into your budget. You should also review what the fee covers. For example, does it include yard work, amenities, and other property costs? Are these costs reasonable for what you are getting?

In addition to fees, most HOAs also have rules that must be followed. You should review these rules thoroughly and make sure they are agreeable to your lifestyle. For example, if you’re a dog lover, be sure that the HOA allows pets. 

Loan Issues

An important consideration when purchasing a condo in Birmingham or elsewhere is that buying a condo can, in some circumstances, present issues with securing a mortgage loan. One thing that a lender will likely require is that a high enough percentage of the units in a condo development are owner-occupied and that a single owner or investor doesn’t own too large of a percentage of total units.

In addition to these types of requirements, lenders may also have higher loan-to-value ratios, which refers to how much the condo is worth vs. how much is owed on the condo. If you don’t work with your lender to figure out the details well in advance, you may find yourself in a position where your loan doesn’t go through and you’re back to square one of the home buying process, potentially having lost earnest money and other expenses, too. 

Special Assessments

You should always ask about special assessments before buying a condo and learn as much as you can about the HOA’s reserve fund. A special assessment is an extra charge that the HOA can levy on condo owners in order to fund a specific project, such as a roof replacement.

Usually, special assessments can be implemented by an HOA board and do not require the vote of all members of the association. If the HOA doesn’t have enough reserve funds to cover costs for projects, then a special assessment is more likely. 


Of course, the community in which you’ll be living is always something to think about. But when buying a condo, who you’ll be living next to may be an especially important consideration, as you may very well be living on top of (or below) one another. You may share walls, have to work together to resolve disputes or make decisions, and generally be subjected to each other’s lifestyle preferences while in close proximity. Just something to think about before buying.

Call Our Residential Real Estate Attorneys for Legal Help

To learn more about residential real estate considerations and what to think about when buying a condo, or for legal representation during the process of buying or selling a home in Birmingham or the surrounding areas, call the BHM Law Group today. Our real estate attorneys can provide you with the quality representation you’re looking for. Reach us today at (205) 994-0902.