If one partner contributes substantially more to the down payment on a house than the other, that person may want to own more than half of the property. As with the Contract for Equal Ownership of a House, you can tailor an agreement to your own particular situation when it comes to issues such as sharing monthly housing costs and what happens to the house if you break up.
To complete the Contract for Unequal Ownership of a House form, follow the directions above, with the following exceptions:
Clause 2 (Title). The Contract for Unequal Ownership of a House assumes you will take title as tenants in common, the appropriate form for taking title when you have unequal shares of ownership in the house.
Clause 3 (Splitting Costs). The clause in this contract allows you to split costs, such as down payment and monthly mortgage payments, however you want.
Kelly and Sam contribute different amounts to the down payment on a house (Kelly one-third and Sam two-thirds) and they decide to split ownership of the house the same way. To keep things simple, Sam will pay two-thirds of the monthly mortgage, taxes, and insurance payments. Because they use the house more or less equally, Sam and Kelly agree to divide utilities and other routine monthly expenses equally.
If one person has lent the other down payment money, be sure to read the discussion of “Equal Ownership of a House,” above, especially the discussion of promissory notes. It’s not easy to decide whether to use the loan approach or the unequal ownership concept. If the property goes way up in value, the unequal ownership structure will favor the owner with the greater share—but if the property values go down, the one making the larger contribution would be better served by the loan model. Because you don’t know which direction values are heading, there is no right or wrong answer. Instead, pick the approach that most closely matches the way you think about your co-ownership arrangement.
Sam Rutherford and Kelly Franklin make the following agreement to jointly purchase and own the house at 9 Oak Road, Austin, Texas (hereafter house):
1. We will purchase the house for $ 400,000 (including closing costs).
2. We will take title as tenants in common with the following shares:
3. Sam will contribute ⅔ and Kelly will contribute ⅓ of the down payment and closing costs. Sam will pay ⅔ and Kelly will pay ⅓ of the required payments for the mortgage, homeowners’ insurance, property taxes, and [fill in any additional costs or fees such as any fees required by a homeowners’ association] . All use-related expenses (including utilities and the cost of routine repairs) and maintenance will be paid equally. Any improvements to the house costing more than $ 500 will be made by mutual consent with each of us agreeing to pay half, and each shall contribute equally to all such improvements.
4. Should either of us decide to end the relationship and cease living together, one of the following will occur:
(a) If one person wants to stay and the other wants to move on, the person staying will pay the person leaving fair market value (see Clause 5) for his or her share within 90 days. When payment is made, the person selling his or her share will deed the house to the person buying the house. The person buying the house will ensure that the selling partner’s name is taken off the mortgage. If the lender refuses to remove the selling partner’s name from the mortgage, the buying partner will obtain a new loan in his or her name only. If the buying partner cannot obtain a new loan in his or her name only, the house shall be sold.
(b) If both of us want to keep the house, we will try to reach a mutually satisfactory agreement for one to buy out the other. If by the end of two weeks we can’t, the decision will be made as follows [choose one]:
(1) Right of First Offer. If both of us want to keep the house, Sam will have the right of first offer. This means that Sam may purchase Kelly’s share of the house within 90 days for its fair market value (see Clause 5). If Sam does not make full payment during this 90-day period, Kelly will have an additional 90 days in which to buy out Sam’s share for its fair market value. When payment is made, the person leaving will deed the house to the person retaining it in his or her name alone. The person buying the house will ensure that the selling partner’s name is taken off the mortgage. If the lender refuses to remove the selling partner’s name from the mortgage, the buying partner will obtain a new loan in his or her name only. If neither person exercises his or her buyout right, or if the buying partner cannot obtain a new loan in his or her name only, the house shall be sold.
(2) Coin Toss Method. A friend will be asked to flip a coin within 60 days of our decision to separate. The winner of the coin toss is entitled to buy out the loser’s share, provided the winner pays the loser fair market value (see Clause 5) within 90 days. If full payment isn’t made during this period, the loser of the coin toss will have an additional 90 days in which to buy out the winner’s share of the property at fair market value (see Clause 5). When payment is made, the person leaving will deed the house to the person retaining it in his or her name alone. The person buying the house will ensure that the selling partner’s name is taken off the mortgage. If the lender refuses to remove the selling partner’s name from the mortgage, the buying partner will obtain a new loan in his or her name only. If the buying partner cannot obtain a new loan in his or her name only, the house will be sold.
(c) If neither of us wants to own the house or payment isn’t made within 90 days, the house will be sold and the profits divided as follows: Sam: ⅔ and Kelly: ⅓ .
(d) We are both responsible for our share of the mortgage, insurance, and taxes until the house is sold or it changes ownership. If one of us moves out of the house before it is sold, the remaining person will make a good faith effort to find a tenant who will pay a fair market rent. Assuming a tenant is found, the rental amount will be credited against the departing partner’s payment for shared housing costs.
5. Should either of us decide to end the relationship, we will do our best to agree on the fair market value of our house. However, if we can’t agree, we will jointly choose and pay for the services of a licensed real estate appraiser to conduct an appraisal, and we will abide by the result. If we can’t agree on an appraiser in the first place, each of us will independently retain and pay for the services of a licensed real estate appraiser. The fair market value of the house will be the average of the two appraisals. “Fair market value” for one person’s share of the property is defined as an amount equal to the fair market value of the entire property, less the then-current mortgage amount, multiplied by that person’s percentage ownership interest in the property.
6. Should either of us die, the survivor, if he or she has not become the owner of 100% of the deceased person’s share through a will, has the right to purchase the portion of the property given or left to someone else at the fair market value of that share (to be arrived at under the terms of Clause 5) within 200 days of the date of death.
7. If either of us is unable or unwilling to pay his or her share of the mortgage, taxes, or insurance payments in a timely manner, the other may make those payments. These payments will be treated as a personal loan to be paid back by the person on whose behalf they are made within six months, including ______% interest per annum. If the loan isn’t repaid in six months, the debtor must vacate the house and either sell his or her interest (in which case the buying partner must ensure that the selling partner’s name is removed from the mortgage, as set forth in Clause 4) or agree to sell the entire property at fair market value which will be established by appraisal, as set out in Clause 5.
8. This contract is binding on our heirs and our estates.
9. Any dispute arising out of this agreement will be mediated by a third person mutually acceptable to both of us. The mediator’s role will be to help us arrive at a solution, not to impose one on us. If good faith efforts to arrive at our own solution with the help of a mediator prove to be fruitless, either of us may make a written request to the other that the dispute be arbitrated. If such a request is made, our dispute will be submitted to arbitration under the rules of the American Arbitration Association, and one arbitrator will hear our dispute. The decision of the arbitrator will be binding on us and will be enforceable in any court that has jurisdiction over the controversy. By agreeing to arbitration, we each agree to give up the right to a jury trial.
Trying to divvy up ownership of a house with 100% accuracy can be more trouble than it’s worth. We can’t overemphasize that the best contracts are the simplest. For example, we recommend rounding off fractional ownership interests (25% and 75%, not 24.328% and 75.672%). And if one partner puts up a little extra cash or labor, or forks out a bit more money to make an emergency roof repair, either forget it or consider the extra contribution a personal loan and record it in a separate promissory note rather than repeatedly redrafting your ownership contract to adjust your respective ownership percentages a smidgen. As long as any separate promissory notes are paid off before or when the house is sold, this approach is safe and simple