GUEST POST from Don: Co-Buying (“Moving In”, Part 4)


Even if everyone else is jumping off of bridges, you shouldn’t.

26.7% of homes are being co-bought in 2023/2024.  Even more vehicles.  Risky!

Co-buying is signing a loan document with someone who is not your spouse.  It is a BUSINESS arrangement.

Being neither a lawyer nor licensed financial advisor, I have to believe those lawyers and financial advisors who say “Don’t do this!”  The risks for co-buyers are GREATER than for married couples.  Why are the risks higher for unmarried co-buyers?

When married, if one person does something dumb, like gamble, it can cause bankruptcy.  The same can happen for co-buyers, except that if one co-buyer drops out (due to bankruptcy or other reasons) the other has to sue to fix half the debt to that person.  You think, “I’m only on the hook for half the debt.”  That’s not true.  When you sign the loan document you are agreeing to be responsible for ALL of the debt.  In a divorce, in about 10 states, debt and assets are automatically divided EQUALLY*.  In the remainder of states debts and assets are divided equitably through the divorce process*.  But with co-buying, one party can merely walk away from his or her half (unless the other sues).  Unfortunately, you cannot sell that asset without that person’s signature.  That person can refuse to cooperate…unless you sue.  The BIGGEST issue is that a lawsuit does not give the same AUTOMATIC protections to the offended party as a divorce does.  If you lose the lawsuit you can still walk away with all the debt, plus lawyer fees.  If you lose, you lose big. (* In most states you can submit the paperwork for a no-contest divorce without a lawyer and have the same rights.)

Fine, maybe, with a house.  But a car can be driven away, or worse, the offending party drives it away, stops paying insurance, and totals the car.  You have no asset to cover the debt and no insurance to cover the asset.  Remember, you cannot control what another person does.  Again, in a divorce (same accident and no insurance) the debt is automatically split.  You only owe half.  That’s still bad, but it fixes half of the debt in the name of the ex-spouse making you NOT RESPONSIBLE for that portion.  The bad news…if he/she does not pay the bank can still repossess.

OK, what if you are the offending party who walked away?  If your co-borrower goes bankrupt…  Guess what!  You are now on the hook for ALL the debt.  You aren’t living in the house and you are not driving the car, but you on the hook for 100% of the balance.  Except now you are unlikely to obtain judgement on the other because he or she has already declared bankruptcy.  Oh, my!  You think this would never happen?  And, because of the bankruptcy it will be far more difficult to sell the asset.  With a divorce you have more options.

Folks!  50 years ago I read that you should never co-sign a loan with someone who is not your spouse.  That financial gem has not lost its truth since.  It is just that fewer people are heeding the warning.  

OK.  Buying a house with your lover is not the only kind of co-buying.

1. Buying something WITH friends (something that is now happening more often).
2. Signing a loan for an adult child (just nope!).
3. Signing a loan for a parent (same!).
4. Signing a loan with roommates (just why?).

These are worse.  There is no right way to do these things without a contract between the signing parties prior to the loan.  PRIOR to the loan!!!  The contract should specify who owns the asset in the case one party fails to pay his/her obligations.  It should also divide asset ownership based on % of down payment, loan payments made, and repair costs paid by each party.  If one party paid $27,000 (60%) and the other paid $18,000 (40%) they should not be equal owners of the asset at sale.

The contract merely sets each person’s responsibility in case one or more others does something dumb.  It may not protect you directly from the lender, but it can save you some time and trouble if you have to sue other owners.  Make sure it was signed and notarized.

“Never co-sign a loan with a non-spouse.”  These words can protect you and your credit history.

Two more …

1.  If the other person or persons seeking the loan with you has a poor credit history, you should RUN.  They already have too much debt or are poor at paying their debts.  You are taking too many chances.  If you wouldn’t drive in 10” of snow, why are you riding in the car with someone else who is?  This common sense is not always as common as it should be.

2.  Never put money into a house when you’re name is not on the deed.  So if your name isn’t on the title, you don’t actually own the home. If you break up or your co-signer dies, you have no rights to the house.  You’re essentially considered a tenant.  Not true if married.  

Know the risks.  Think carefully.  Do your homework.  

FYI.  I plan on writing a short short story for Independence Day, perhaps about Fort Boonesborough which played a role in the fight for Independence.  I encourage you to put on your creative caps, too.  I would love to see your art, hear your music, or read your poem on the same theme.  I’m sure my host would as well.  Let’s party with creativity!!!

[PLEASE NOTE that Don is always open to discussing the thoughts and opinions he shares here and welcomes comments as shared in the comment section. He doesn’t use other social media platforms and won’t see whatever you’d like to share with him if you post it elsewhere.
ALSO, Don is always open to offer his thoughts on various topics. If you have a specific request, you can let him know in a comment; he reads – and replies to – them all. ~ Sherry]

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4 thoughts on “GUEST POST from Don: Co-Buying (“Moving In”, Part 4)

  1. Since writing this (two months ago) I have seen at least 3 articles on the same subject. (Is someone looking over my shoulder?)
    Unfortunately, those stories failed to mention the downsides of co-buying. “Its all fun until someone breaks a nail.”
    My hope is that someone will be “saved” from the heartbreak and loss.

    1. I have a sense that the long-term success stories of these contracts aren’t as common as the failures…it would be interesting to find some stats…

      1. Hmm. The average couple in a live-in situation break up within 5 years.

        The average loan term is 30 years.

        What could go wrong? Further, these types of loans cause many bankruptcies because they are thinking “two incomes.” They should be thinking “one income.”

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