Louisa looks for ... A fair share

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Q I bought an investment property five years ago with a friend, where I own 20% and he owns 80%. My friend had to borrow against the property to buy his 80% share while I financed my share from an existing loan.

Because the property is jointly owned, the bank insisted that my friend’s mortgage be in both our names. Being fully aware of the legal ramifications, I reluctantly agreed to this – but only as we were told that it had to be that way and no other financial institution would be any different.

We would like to find a financial institution that will refinance the mortgage secured by the property so that we both have separate, individual loans. Are there any that offer this sort of arrangement?

A It sounds as though you went into this agreement with your eyes wide open, so you may have come across the principle of “joint and several liability”. In effect, your financial institution may be able to pursue either you or your friend for the entire balance of the loan and costs if either of you default. I hope you created a solid written agreement before entering into this arrangement, as it appears you may have taken on quite a lot of the downside risk with only a small amount of the upside potential.

I think your instinct to separate the loans is correct but it may be challenging to find an institution to take on the risk. As you bought the property five years ago, you may have built up equity in the property, which could allow your friend to qualify for a loan without the need for the additional security offered by your 20% share of the property. I would suggest you shop around and talk to a wide range of mortgage brokers and banks to see if any are able to offer you a solution.

If you are unable to restructure the loans and remain uncomfortable with the arrangement, another possible solution would be to dissolve the agreement. You could do this by selling the property and paying off the debts, or possibly having one partner buy out the other partner’s share. However, if your friend buys out your share, you’ll need to be careful you are not still a guarantor for his remaining loan. With some effort, you may be able to finalise this arrangement without damage to your finances or your friendship.

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