A joint mortgage is a mortgage taken out by multiple people. Usually, a mortgage is secured on a property by the people who own it. However, with a joint mortgage that does not necessarily have to be the case. A joint mortgage may be held by someone who is not on the title for the property and another person who is. As such, a joint mortgage can have important implications for property ownership and liability on the loan.
What is the difference between a joint mortgage and joint ownership?
A joint mortgage does not equal ownership. Your name can be on the loan even if you do not have title to the property. Alternatively, joint ownership means you own the property usually as tenants in common or joint tenants.
As a co-tenant or co-owner, you can encumber your own interest. This means you can take out a mortgage on your portion of the property without letting others know. (Zieve Brodnax & Steele, LLP v. Dhindsa (2020) 49 Cal.App.5th 27, 35) Usually, when you co-own a property, if there is a mortgage on the property, that mortgage is held in both owners’ names.
A joint mortgage makes it so the two people’s names on the mortgage do not necessarily need to correspond to the names on the deed for the property.
What are the credit score implications?
A joint borrower’s credit score will factor into whether you get approval for the joint mortgage. Depending on the lender, they may consider the highest, average, or lowest score. As such, if you take out a joint mortgage with someone who has a higher credit score than you, you may be approved for a better loan, or it may be easier to get that loan.
Where a joint mortgage was obtained using only one person’s financial statements, that may alter the distribution of credit extended. For example, where a married couple, Enzo and Sarah got a joint mortgage and the lender only relied on Sarah’s financial statements that would not make the property community (shared) property. (In re Cecconi (Bankr. N.D. Cal. 2007) 366 B.R. 83, 124.) So, while both parties may be liable, when it comes to reimbursements if only one person made payments, the other may not have a right to that reimbursement. (Id.)
What if someone on the loan stops making payments?
A joint mortgage is just like any other mortgage in that payments must be made or there is the risk of foreclosure. (Brown v. Deutsche Bank National Trust Company (2016) 247 Cal.App.4th 275, 280.) As such, even if both people on the mortgage are not necessarily owners of the property, the property would still risk foreclosure in the event of default.
Where a mortgage may only attach to one owner, that will not relieve other co-owners of the property of their responsibility. A lienholder could still file for foreclosure (Cal. Code of Civil Procedure § 726; Schoenfeld v. Norberg (1970) 11 Cal.App.3d 755, 766.) Even if the debt is only applicable to one co-owner’s share, foreclosure of the whole property can still occur. Similarly, if a tenant in common dies and the lienholder forecloses the property, the lien can still be enforced against the remaining tenant in common. (Dieden v. Schmidt (2002) 104 Cal.App.4th 645, 651.) The same is the case for a joint mortgage.
What are the benefits of a joint mortgage?
A joint mortgage allows people who are not married to buy property together. Individuals, banks, and other financial institutions cannot discriminate based on marital status or lack thereof in granting loans. (Gov. Code § 12955, subd. (e).) A joint mortgage allows for increased buying power which is helpful with today’s expensive housing market. Having two people sign onto a loan makes it easier to qualify for and get that loan. It also allows two people to make payments on that mortgage, lessening the financial burden.
What are the drawbacks of a joint mortgage?
As a co-borrower, you have a right to foreclose the mortgage to protect the common beneficial interest. (Perkins v. Chad Development Corp. (1979) 95 Cal.App.3d 645, 650.) This applies if you are a co-tenant as well. This means if you default, your co-borrower could act to protect the common beneficial interest. If the default is so significant, the property may need to be sold. Additionally, just because you are on a joint mortgage does not mean you have a property interest.
Can a joint mortgage be transferred to one person?
A joint mortgage may be transferred to one person in the event of one borrower’s death or if one borrower buys out the other’s part of the mortgage. This is similar to a tenant in common dying where there is still an outstanding mortgage on the property. The lien can still be enforced against the living co-tenant. (Dieden, 104 Cal.App. at 651.) Following new sections of the Civil Code added in 2024, mortgages with multiple borrowers may need a specific provision to allow for a borrower to buy out another’s interest and assume that portion of the mortgage. (Civil Code § 2951.) There may be more restrictions on this if it is following a dissolution of marriage or legal separation.
What is an example of a joint mortgage?
For example, “Shawn” and “Julie” are boyfriend and girlfriend. They want to buy a house together. With a joint mortgage they could do so and share in the liability for the loan. This means the lender would look at both of their financial information, including credit score, to determine if they were eligible for the loan. If they were given the loan, they would both be responsible for making payments and for any consequences if it went into default.
They would likely each hold a one-half interest in the home as tenants in common, but they would not need to both hold an actual property interest in the home.
Alternatively, if Shawn wanted to buy a home but did not have enough money or a high enough credit score to do so, he could ask his father to help him. Shawn and his father could take out a joint mortgage to buy a home. Shawn could hold title to that home entirely in his name, but both him and his father would have their names on the loan. They would both be liable for ensuring the mortgage was paid.
Importantly, Shawn’s father would not hold an interest in the home just because he made payments on the joint mortgage. If Shawn’s father died, Shawn would still be responsible for the whole mortgage.
Conclusion
The type of mortgage on a property is important in a property dispute for how proceeds in a buyout or sale are distributed. Because a joint mortgage does not create a property interest, a co-borrower may not be able to force an action like partition. However, because it is a loan, one co-borrower may be able to force a sale, or a foreclosure may result in the loss of property following a default.
As such, it is important to be aware of the benefits and drawbacks of putting your name on a loan with someone else, especially when that loan is tied to property. If you have concerns about how a mortgage is impacting your interest in property or are interested in dividing property that has a mortgage attached to it, at Underwood Law, our partition attorneys can help you navigate your action efficiently and with care. We are here to help.
