Q: My daughter bought a condo with a friend. She put down $40,000 and her friend put down $20,000. They are both on title to the home but only my daughter is on the mortgage.

How much of the property would her friend be entitled to if she wants out of the deal? They bought the home for $300,000 with a $240,000 loan. Her friend never paid any money towards the mortgage or other expenses and is demanding $150,000. The home was bought four months ago.

A: It’s unfortunate that your daughter is in this situation with a friend. But in this real estate market, it’s also unlikely that the property has appreciated in value in four months. If the property is still worth $300,000, your daughter’s friend should be happy to get her money back.

Your daughter’s friend seems to feel that her $20,000 down payment towards the home should now be worth $150,000. She’s confusing the fact that the value of the condo should be reduced by its debt. The equity in the home — the difference between what the home is worth and the mortgage amount — is what her share of the profits would be calculated on. So if the property is still worth $300,000, and the loan is $240,000, there is approximately $60,000 in equity.

But there have been expenses toward the upkeep and ownership of the property that the friend should have contributed to during the past four months, especially if she was living in the home.

While there may be other circumstances that affect their arrangement and you did not disclose whether they had any other understandings, it would seem that at the very most she should get her $20,000.

But you could easily go further and say that her $20,000 should be reduced by any amount she owes for expenses from the time they bought the place, the friend’s share of the costs to purchase the place and the friend’s share of any costs to take her name of the title to the home. This might include her share of real estate property taxes, monthly assessments, mortgage payment, any repairs that had to be done to the property, etc.

Your daughter and her friend should have asked a real estate attorney to draft an agreement that discussed ownership of the property and who would contribute what in terms of cash and sweat equity. Since she didn’t do this at the outset, your daughter should find a good attorney now who can handle the separation of this asset.

Your daughter should not hand over a single dollar until her friend has drafted a quit claim deed. You may wish to encourage her to have a real estate attorney oversee the arrangement and exchange to be sure she is protected.

If this issue comes up in the future, please have an attorney draft a partnership agreement that spells out the terms and conditions of the ownership and maintenance of the asset.

Published: Oct 4, 2008