Can You Lose Your Home if Your Co-Owner Doesn’t Pay His Mortgage?

If you’ve ever rented an apartment, you may have had the problem roommate. That’s the one who signs the lease but then can never quite come up with the monthly rent. Or who disappears altogether.

Problem roommates are no fun. And the situation can get even worse if you buy a house with someone who can’t pay his or her bills.

If you both signed the note and mortgage, you’re probably liable for the full monthly payment amount if your co-owner doesn’t pay his share. If you also don’t pay, you could both face foreclosure.

But what if you and your housemate co-own the property, but your housemate is the only one who has a mortgage? Can your housemates’ lender foreclose on both of you and cause you to lose your equity in the property?

That’s the question the Florida Court of Appeal considered in the recent case of Gonzalez v. Chase Home Finance LLC. In that case, the lender had obtained a foreclosure judgment against two men named John and Freddy, who were co-owners of a piece of residential property. Only Freddy’s name was on the mortgage, and John had recorded his deed to the property before the mortgage was ever signed.

The Court of Appeal overturned the foreclosure judgment against John, who wasn’t on the mortgage, based on the type of co-ownership and general principles of priority in real estate liens.

Freddy and John owned the property as tenants in common. That meant that each owned a half interest in the property. A half interest is sort of like owning half of the value of the property, as opposed to splitting the actual house and land down the middle and saying that each person owns half. Tenants in common are each free to sell or mortgage their half interest.

However, a property owner can’t sell or mortgage more than he or she owns. In this case, the court held that Freddy could only mortgage his half of the property – he couldn’t have a mortgage that also encumbered John’s half. That meant that Freddy’s lender couldn’t foreclose on John.

The court also said that John’s ownership had priority over Freddy’s mortgage. Deeds, mortgages and other liens on real estate are all recorded with the county where the property is located. When someone defaults on a mortgage, the date the mortgage was recorded becomes important. If there are multiple claims on the property, the one that was recorded first is superior.

John’s deed was recorded on March 8, 2006, while Freddy’s mortgage was recorded a week later, on March 15th. The court’s opinion said that foreclosures can be used to enforce the mortgage against a borrower and anyone whose interest in the property is inferior to the mortgage lender’s. Since John’s deed was recorded before the mortgage, his interest in the property was superior and could not be foreclosed on.

If you co-own real estate with someone who is not your spouse, a foreclosure can present special issues, particularly if your name is not on the mortgage. An experienced foreclosure lawyer can help you determine whether you have valid defenses to foreclosure.