This is by far the most commonly asked question when it comes to shared ownership, and by rights, it should be.
If a co-owner defaults on their mortgage or rental payments, the process is not much different than defaulting on 100% of a standard mortgage or rent. Eventually, payments will become due and payable.
Rest Assured There’s a Fair Process
Your co-ownership agreement is vital for dealing with any issues like this one. It clearly outlines your obligations and what steps will be taken should something unfortunate happen to one of the owners.
Our co-ownership agreement states that both co-owners will need to take out and maintain mandatory income protection insurance to cover a minimum payout period of twelve (12) months. This will allow time for the non-defaulting co-owner to take action if the circumstance arises.
However, in the event your co-owner has missed a payment, your bank and you're co-owner will notify you of their first default. If the defaulting co-owner fails to make the required payments within the agreed period stipulated in our co-ownership agreement, normally 21 days after a letter of demand has been sent. The non-defaulting co-owner receives full power of authority to sell the defaulting co-owners percentage of the property.
If the defaulting co-owner holds more than 20% of equity on their share, their share would be listed for sale 10% below a fair market valuation, unless a lower percentage is approved by the non-defaulting co-owner. If the property does not sell in a four week period of being advertised, it will be further reduced to 15%.
If the property hasn't sold within 12 weeks of being listed for sale, the non-defaulting co-owner will have the ability to choose a sale price of their choice. The marketing, real estate agent and settlement fees will be deducted from the remaining defaulting co-owners equity.
Any remaining equity after the above has been deducted will be issued to the defaulting co-owner accordingly. The property must be valued by a licenced valuer and sold by a licenced real estate agent, both chosen by the non-defaulting co-owner.
In the event a deposit less than 20% is held by the defaulting co-owner, the same steps above are taken, however the non-defaulting co-owner has complete control to advertise a price as they see fit. Once the sale has gone through and all expenses taken care of, any remaining equity owing to the defaulting co-owner will be issued.
At any stage, after a co-owner has defaulted, the non-defaulting co-owner has the option to purchase the defaulting co-owners share or sell the property as a whole.
Ensuring that an appropriate agreement is in place to mitigate any risk associated with your investment is vital, as unexpected circumstances beyond our control do happen.
Working closely with your co-owner to understand your obligations as outlined in your agreement will help to build a solid foundation for a lasting investment relationship.