Buying a home involves several legal and financial obligations. To distribute the burden of buying a home, people often opt for joint ownership, with relatives, especially the spouse. “The general view, is that it is a good idea to buy a home in co-ownership. However, each person can enjoy the tax benefits, only if they have separate and genuine sources of income. Also, if any legal dispute arises over the property, then, all the co-owners will be involved in the case. So, home buyers should evaluate all such possibilities, before making a final decision,” cautions Jeevan Kumar KC, head – investment advisory services at Geojit Financial Services. For a house which is under joint ownership between a husband and wife, problems may arise if the couple opt for a divorce. In such situations, it becomes necessary to determine who will get what portion and how the loan responsibility will be distributed.
Liability of home loan repayment, for a jointly owned property
“All co-borrowers have a collective responsibility, for timely payment of monthly instalments of the joint home loan. Default in the joint home loan, due to unforeseen incidents like divorce, death, medical condition, job loss of the borrower, etc., makes the other co-borrowers liable to ensure the servicing of the loan on time. For the financial institution, it does not matter who is contributing and how much one is contributing towards the repayment, as long as the loan is serviced on time. In case of a dispute or death of a co-owner or divorce or insolvency, etc., which may lead to default on the home loan repayment, the lending institution can proceed with the recovery process against all borrowers,” explains Kalpesh Dave, head – corporate planning and strategy, Aspire Home Finance Corporation Ltd (AHFCL).
See also: Taxation of jointly owned property
To safeguard against such possible occurrences and to avoid disputes, the co-borrowers should plan the payment terms of the joint loan (such as percentage of contribution, payment type, account type – whether single or joint and the period), with the lending institution.
Settlement of jointly owned property, on divorce
When a couple decides to separate, the house taken jointly and which is mortgaged to a financial institution, has to be amicably dealt with. There are many ways to settle this and the outstanding amount:
- Sell the property and clear the loan. The remaining amount could be divided mutually.
- One party can take over the property ownership, by settling the contribution of the other party. The property can then be refinanced, based on his/her borrowing capability.
- Clear one party’s name from the lending institution’s loan account. The institution shall assess the possibility of doing so and the loan amount outstanding, by examining the other party’s repayment capacity.
For a lending institution, all the applicants are equally liable for the outstanding amount, without disparity. Consequently, although nobody thinks of divorce-like situation in advance, it is very important for couples couple take help of the legal experts, before buying a home in joint names.