Q: My question has to do with a home I purchased with my boyfriend in 2007. After we bought the home, things didn’t work out between us. He moved out, but wants the house back.
I might be interested in buying him out. Both names are on the mortgage and title. We paid $70,000 for the property, but we think the home might be worth $85,000. What should the buyout price be? The mortgage is still at $70,000.
A: First, given today’s real estate market, the house may actually not be worth $85,000. It may not even be worth the $70,000 mortgage you have. You bought the house at the market high in 2007, and prices have fallen more than 20 percent (and up to 50 percent in some markets).
Please talk to a real estate agent to establish the true value of the property. It could be worth as little as $50,000 or a lot more.
Next, if you want to own this property on your own, you should see if you can afford to finance it into your name alone. That is the only way to get your boyfriend’s name off of the mortgage and title to the property.
If the property value hasn’t fallen too much, or you are right and the home has increased in value, you can try to refinance under the Making Home Affordable Act (www.makinghomeaffordable.gov for details). If the property has fallen below the threshold for refinancing, you can ask your ex-boyfriend if he wants to put in some additional cash to make the deal happen. He’d have to do this if you decided to sell.
In any case, I suggest you consult with a real estate attorney who can prepare the paperwork and make sure you are protected in the deal.
If it turns out that the property has increased in value, then you should subtract the costs of sale and the amount of the mortgage from the true value of the property and offer to split any increased appreciation with him. You also need to take into account any money each of you put into buying the home, money each of you put into the monthly expenses for the home, and any checks either of you wrote to finance improvements to the home.
For some people it’s easy: they both put in the exact same amount to buy the home and pay the monthly expenses. Everything is exactly equal. If that’s the case, you can assume the costs to sell the home, and your boyfriend could pay you exactly half of the amount the two of you decide would be the proceeds from the sale of the home.
Just remember, if you’re basing your calculations on a sale, you need to factor in the payment to a real estate agent for his or her commission, closing costs and other fees.
I’m guessing, however, that your boyfriend will either have to put money into the deal or if the home isn’t worth as much as you think, he will walk away without a cent.
May 28, 2009