Difficulties between the co-owners of a property, like the divorce of a couple, have several ramifications on the ownership of the property. We examine the implications on home loans, the division of the property and ways to resolve the problem amicably.

Buying a home involves many legal and monetary obligations. To distribute the hassle of buying a home, peoples usually opt for joint ownership, with relatives, especially the spouse. The general view is that it’s a decent idea to buy a house in co-ownership. However, each person can enjoy the tax advantages, 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 measure all such possibilities, before making a final decision. For a home which is under joint ownership between a husband and wife, problems may arise if the couple decides on divorce. In such situations, it becomes essential to determine who will get what portion & how the loan responsibility will be distributed.

Accountability of Home Loan Repayment, for a Jointly Held Property

“All co-borrowers have a mutual 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 make sure the servicing of the loan on time. For the financial institution, it doesn’t matter who is contributing and how much one is contributing towards the compensation, as long as the loan is maintained on time. In case of a conflict or death of a co-owner or divorce or bankruptcy, etc., which may lead to the default on the house loan compensation, the lending institution can proceed with the recovery process against all borrowers,” explains Kalpesh Dave (Head – Corporate Planning & Strategy, Aspire Home Finance Corporation Ltd).

To safeguard against such possible occurrences & to avoid disputes, the co-borrowers should plan the payment terms of the joint loan (such as the percentage of contribution, account type, payment type – whether single or joint & the period), with the lending institution.

Settlement of Jointly Owned Property, on Divorce

When a couple chooses to separate, the house took together also which is mortgaged to a financial institution, has to be amicably managed. There are multiple ways to settle this & the outstanding amount:

• Sell the property & clear the loan. The outstanding amount could be divided mutually.
• One person can take over the property ownership, by resolving the contribution of the other person. The property can then be refinanced, on the basis of his/her borrowing capacity.
• Clear one person’s name from the lending institution’s loan account. The institution shall assess the chance 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 responsible for the outstanding amount, without disparity. Consequently, although nobody thinks of divorce-like scenario in advance. But it’s vital for couples couple to take help of the legal experts, before buying a home in joint names.

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