Break up and Joint Home Ownership: What to Do with the Mortgage?

In this blog, we will focus on joint property, briefly discussing the situation of couples who are not married or are in a registered partnership, who do not have a contract on the issue of living together or who have not written down any arrangements on paper for the division of property/shared house in the event of break up. In Dutch, we refer to this as ‘samenwonen zonder samenlevingscontract’.

If you are co-owners of a property, you need to decide together what you are going to do with the house. For example, will one of you continue to live there, or do you plan to sell the house?

Generally, three options are possible:

1. One of the partners takes over the house and the mortgage
2. Sell the house
3. The partners keep the house and mortgage together, e.g. so that the partner with children can live there (temporarily)

 

Taking over the mortgage and house from your partner

If you have bought a property together and have a joint mortgage, both partners are equally liable for the entire debt. Taking over the mortgage from one partner and releasing the other partner from liability for the loan means that you are no longer jointly liable for the home loan. The partner who wants to take over the house must also be able to take over the loan (i.e. have sufficient earnings to be able to pay the entire mortgage).

Looking from the perspective of the leaving partner, in order to get rid of this liability, you will have to apply to the bank to release you from liability for the loan (removal from the mortgage). The former partner, who continues to live in the house, will need to demonstrate that he or she is able to bear the cost of the mortgage alone. In practice, this means that the bank will assess your partner's creditworthiness, evaluate his or her annual income and determine whether he or she is earning enough for the mortgage you have together to be able to pay alone.

If the bank agrees, the leaving partner can be ‘released from responsibility for the loan’. To this end, a ‘deed of division’ must be signed at a notary. From the date of signing, the remaining partner is solely responsible for covering the monthly repayment costs.

The process is similar to applying for a mortgage when buying a house, although it can be much more complicated. In case of taking over the house and mortgage the partners bear the costs of the financial advisor, notary, deed of partition, a specialist in the valuation of the house, and administrative costs of the bank.

If the partners are willing to part amicably, they should agree on issues concerning the division of the value of the house (profit if the house value is higher than the mortgage) or the debt if the mortgage debt is higher than the value of the house. The house can be valued by a specialist (valuator), or partners can use the WOZ value to discuss the division. All arrangements should be written down on paper and signed by both partners.

If the value of the house is higher than the value of the mortgage, then there is an additional value (a surplus, overwaarde). If you break up and take over the mortgage, you have to buy out your ex-partner. Normally you pay your ex-partner half of the excess value (overwaarde).

 

Decision to sell the house

If you decide to sell your house, you should first have it appraised (taxatie). Then you know what the current value of your house is. If your mortgage is higher than the assessed value, you will be left with an unpaid mortgage debt after the sale. If you have a National Mortgage Guarantee (NHG), then the NHG can cancel your remaining debt under certain conditions. You can check in your mortgage documents whether you have a mortgage with NHG.

Also arrange what will happen with the house in the time before the sale. When you sell your home, you pay off the mortgage debt first.

The agreement of both partners is required to sell the house. If your ex-partner is not co-operating with the sale of the house, first try to come to an agreement through mediation. If that doesn't work, seek help from a lawyer. Your lawyer can ask the court for permission to sell the house. You then no longer need your ex-partner's permission. You will not be able to sell the house if the court does not issue such permission.

The sale of a house often has financial consequences. In the case of a sale at a profit, usually the partners share the profit equally or according to a previous agreement. If the mortgage is not paid off after the sale of the house, you are jointly responsible for it. The lender will ask you to repay the remaining debt. The partner who repays the whole can ask the other partner to repay his or her share.

 

Temporary keeping of house and mortgage after a break up

It is very rare that partners decide to keep the house and the joint mortgage so that one of the partners can (temporarily) live in the house until another solution is found. However, despite the good intentions of both partners, this solution does usually not work out in practice. The partners are bound by the responsibility for the house and the mortgage, which blocks them from taking the next steps. In addition to the joint responsibilities comes the maintenance of the house, and related costs such as; insurance, and numerous financial obligations, which can create additional problems.

It is very important to seek advice from a mortgage advisor, but also from a fiscal/tax advisor or an accountant when breaking up, taking over a mortgage or selling a house. These changes will affect the partners' tax situation, tax returns, insurance, and may also affect the possibility of taking out other loans or applying for housing subsidies.