Cohabitation and mortgage payments: what happens when someone stops paying?
13 November 2023
If you own a property with someone who becomes unwilling or unable to contribute to the mortgage, keeping up with the payments can be very difficult.
If the mortgage is in your joint names, it is likely that you are “jointly and severally liable” for the mortgage debt. This means that the lender can pursue either of you for the full amount owed. (The same would apply in situations with more than two joint owners.)
This might have disastrous consequences for you. If the mortgage instalments are not paid on time, ultimately your lender can take legal action to recover the outstanding debt. This may involve taking you and the other owner(s) to court and obtaining a court order for repossession and sale of your property. The lender can continue to charge interest on the outstanding debt and may also add legal and administrative charges, which can further increase the amount owed. You and the other owner(s) may receive any surplus from the sale after the debt and associated costs are paid, but if there is a shortfall, you would all still be liable for the remaining debt.
Failing to make mortgage payments can also result in a negative entry on your credit report, making it harder to take out future mortgages, loans and/or credit cards. It can also make it more difficult for you to rent in the future, as landlords and letting agencies often carry out credit checks on prospective tenants.
What can I do?
When purchasing the property, you and the other owner(s) may have signed a Declaration of Trust stating how the mortgage payments will be split between you. A Declaration of Trust is a legal document that outlines the ownership and financial interests in a property.
If there was a Declaration of Trust, or other formal written agreement, and it said that the other owner(s) would contribute to the mortgage, you could pay the instalments in full yourself to avoid the negative consequences of non-payment, and later bring a legal claim against the other owner(s) to make them pay their share.
You might be able to do this even if no Declaration of Trust/ formal agreement was ever entered into, though this is a complex area of law, and much will depend on the particular facts of your case.
If you are unwilling or unable to pay the mortgage instalments in full, selling the property promptly may be the best way of preventing legal action by the lender. If the other owner (or owners) does not agree to a sale, you can try to force a sale through legal action. The procedure would be to bring a legal claim under sections 14 and 15 of the Trusts of Land and Appointment of Trustees Act 1996 (“TOLATA”).
Under TOLATA, the court can make decisions about a jointly owned property, such as whether the property should be sold when the owners cannot reach an agreement between themselves. Also, the court can award an “equitable account”. Equitable accounting can be described as the “fine-tuning” of the ultimate division of sale proceeds of the property to achieve justice between the owners. Under the broad umbrella of equitable accounting, three issues are commonly encountered: claims for mortgage payments; occupation rent; and improvements to property. For more details on equitable accounting, see our previous article.
If you are thinking of buying a property with other people, you should consider entering into a Declaration of Trust. Setting out your financial and ownership arrangements will reduce the risk of future dispute.
The terms of a Declaration of Trust are a matter for negotiation between you and the other prospective owners. Typically, cohabiting couples agree to each contribute 50% towards the mortgage instalments, but you can agree something different. For instance, if your partner earns more than you, or if they contributed less to the deposit on the property than you, they may agree to pay more than 50% of the mortgage instalments.
If a dispute arises between you and the other joint owner(s) in relation to the property or the mortgage, you should take independent legal advice at the earliest opportunity. The costs and risks of bringing a claim to court might outweigh the potential benefits. There are other methods of dispute resolution, such as mediation, that may be more appropriate in your case.
Birketts’ TOLATA Team is well-placed to assist you with any queries concerning jointly owned property, and joint mortgages, and related disputes.
For more information about the topics covered in this article, please contact Stephanie Butler.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at November 2023.