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Getting Personal

Getting Personal

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Chris Farrell is the economics editor of Marketplace Money.
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In the discussion of pooling money to buy a house, Chris made one statement I strongly disagree with, although he redeemed himself later by emphasizing that the buyers should consult with a real estate attorney and needed to get all their agreements in writing. Chris said " you can put four or five names on the deed......" After (too) many years of practicing real estate law, I can tell you that this is definitely a place to take George Plimpton's advice: "Don't!"

Putting John, Joe, Mary, and Sue on the deed as co-owners of a house creates certain legal relationships between them (and their spouses and heirs), depending on the language used in the deed. If they also enter into a written agreement about their respective rights and obligations concerning the house, then there may be a conflict between the real property rights created in the deed and the contract rights created in the agreement. Conflicts like this can cost a lot of money to resolve, even those that don't end up in court.

The alternative, one that I hope any good real estate attorney or financial advisor would suggest, is to form a partnership. The partnership owns the house, while Mary, Sue, Joe, and John own shares in the partnership. The agreements about using the house, maintaining the house, and paying the mortgage and bills are laid out in the partnership agreement, along with what to do when one partner decides they want out of the partnership, or fails to pay their share of the obligations, or dies, or gets divorced. Using the partnership form also usually saves money when one of the partners leaves because the partnership share can be transferred without recording a new deed or paying transfer taxes or document stamps (although this varies by state).

Using the partnership form is not guaranteed to keep you out of court if one of the partners really wants to argue about something, but it can make resolving most disputes much simpler and easier.

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