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So my fiance and I just broke up a couple weeks ago. We bought a house together a couple months ago 40k below the market value because we knew the homeowner personally so we got a good deal. My name is the only name on the mortgage but I plan on moving out of state for a change of scenery and now she wants to keep the house. What are my options? The house is probably worth at least 60k more than what we bought it for so I’d be losing money by just giving it to her. She also doesn’t make enough on her own to qualify for the mortgage? I just feel so stuck and lost. Please offer your best advice and feel free to ask questions and I will respond as timely as I can.
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Nick's Response
Sorry to hear about the breakup, but that’s great to hear that you and your Fiancée are amicable about it and both want to find a fair resolution here. The good news here is that as long as you two can agree upon a sale price, you should be able to do this with a minimum of frictional expense by avoiding having to go to market.
Here’s what I expect you’ll need to consider:
Your Best Interests
Getting a fair price for the home/maximizing sale price.
Avoiding expenses where possible (Realtor commissions, lawyers’ fees, unnecessary taxes)
Avoiding stress and headache
Maintaining good relations with your ex (sounds like you both want a positive outcome for each other)
Her Best Interests
Getting a fair price for the home/minimizing sale price.
Avoiding expenses where possible (Realtor commissions, lawyers’ fees, unnecessary taxes)
Avoiding stress and headache
Maintaining good relations with you
Getting approved for a mortgage at a fair rate
Steps you’ll need to take
What your ex will effectively be doing here is buying the home from you via private sale, since she’ll need to be moved on to title and getting approved for a mortgage. This isn’t as simple as giving her the home, but it’s not complicated.
Agree on a market value for the home – Nothing else works unless you can do this. My recommendation is to get two or three opinions (maybe you can each arrange one or two and then discuss), even if you have to pay for them (an appraiser or Realtor who has access to comparable sold listings). Once you’ve done this and both agree that should be the “market value” that she bases her price to you on, then proceed from there. If her parents are helping her out, then they’ll need to agree on this too. Market Value here is considered to be “Whatever the home would reasonably sell for if prepared and marketed appropriately by a Realtor on the MLS tomorrow.”
Make sure that she can be approved to purchase at the agreed-upon price – Whether it’s alone or with her parents, a mortgage approval is the next bottleneck. If a lender agrees to approve her purchase, you’re good to continue.
Get independent legal counsel – Would it be cheaper for both of you to just use the same lawyer? Maybe, but it might not be legal where you live, and even if it is it’s very valuable to each of you to have independent legal advise on such a large transaction at such an emotionally charged time. You’re not out to take advantage of each other, but it will give you peace of mind to have someone in each of your corners ensuring you’re treated fairly.
Consider what expenses you’ll have, and which ones you’re saving on – For each of these, consider whether you’d be incurring these expenses if you sold the home to someone other than your Fiancée. If you avoid any particular expense by doing this private sale, then you might want to consider at least partially crediting it to your ex on the purchase price in fairness, but whatever the two of you can agree on is fine. Ask your lawyer for a full list. Some examples:
Realtor Fees – This is the big one. Depending upon where you live, typical fees tend to be from 3-6% of the sale price of the home. You avoid this by selling privately.
Equity from each partner – Have both of you contributed to the mortgage each month? If so, it may be fair to consider her being recognized for contributing to some of the equity in the home.
Land transfer tax – This will be her expense as a buyer, and is one she would have avoided by continuing to live with you if you two had stayed together.
Capital Gains – Where I live (Ontario, Canada) capital gains are not paid on the sale of one’s personal residence, but check if they are where you live.
Sales Tax – Where I live sales tax is not charged on the sale of a resale home, but is on Realtors’ commissions, lawyers’ fees and some other smaller expenses. Check what’s applicable where you live (your Lawyer can help).
Moving expenses – You’ll be incurring them when you move out, depending upon how much of your furniture you’re including in the sale and leaving behind.
Mortgage fees – You will likely pay a penalty fee for ending your mortgage early, and she will pay certain fees to put her mortgage into place.
- Figure out the Agreement, and have everyone sign it – Your lawyers can probably draft an Agreement of Purchase and Sale for you. When boiled down to its essence, what you need to agree upon is:
What price she will be paying for the home
How much of a deposit your lawyer will be holding until the home closes and title transfers
What date the home will officially close (change hands legally)
What chattels (furniture, appliances) are included with the purchase, and which are excluded
What rental contracts are being assumed by the new owner (for example, rented hot water heaters are common in Ontario)
What conditions are on her offer to you and need to be fulfilled for a firm purchase (financing would be a prudent one, for example)
The list above is straightforward, but I’m sure that it will feel a bit heavier with the emotional weight of the breakup. All the best and I wish you the best in navigating it.
When not to sell privately to a partner during a breakup
1
When there is too much bad blood – Any real estate transaction is emotional. If either you or your ex are out to punish the other, avoid the headaches and sell the house on the open market.
2
When you can’t agree on market value – You don’t have to agree down to the penny, but agreeing on a sale price for a private sale takes patience and compromise. If you can’t do this, then agree on some other way to move the property.
3
If the market is terrible (but won’t be for long) – Maybe you can avoid a big mortgage prepayment penalty if you wait six months? Whatever your situation, if buying now will land you both with a loss and you can agree that you’d both be happier waiting until the market improves, that may be an option.
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