Unfortunately, many couples have mortgage terms that last longer than their relationships. While breaking up may be an emotional experience, it can also be costly if there is a mortgage to deal with.
When a relationship breaks down, legal and financial realities will dictate what will happen to the house. Many people believe the house can simply be retained by one of the owners by removing the other owner from title. However, such a basic plan is not always feasible.
While transferring title into one name is an easy process, altering the mortgage may be difficult. The person who wishes to keep the house must qualify for the mortgage on their own. If two incomes are required to authorize the mortgage, the loan may not survive if only one person is available to service the debt. Without the approval of the lender, the house would have to be sold.
When approved, mortgage companies rarely process such files as amendments to the original mortgages. By treating the application as a new mortgage, the lender may charge a significant penalty for breaking the initial mortgage terms.
Deed transfer tax may be applicable when a common law couple breaks up and one person assumes the mortgage. The title transfer is regarded as a sale for an amount equal to debt being assumed. For example, if someone assumes their partner’s half of a $200,000.00 mortgage, the consideration would be $100,000.00 and the tax payable would be $1,500.00. This is always a frustrating part of the process considering that people are being taxed to register title to a property that they already own.
– Elias Metlej is a real estate lawyer with the Halifax firm Blois Nickerson & Bryson. You can write to Elias at askelias@yahoo.com
