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co-ownership of real estate

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.