A woman who helped her son and his wife buy a house has been offered $10,000 in compensation for the way the bank handled the dispute when the relationship went sour.
By Susan Edmunds of RNZ
The case went to the Banking Ombudsman, which published a case note last month.
It said the woman wanted to help her son and daughter-in-law onto the property ladder. They formed a partnership and borrowed $320,000 in October 2008 to buy a house.
The loan was in each of their names.
But when the couple decided to separate, the mother and daughter-in-law decided to sell the property. The son told the bank there was a dispute and it froze the loan accounts and refused to act on any instructions until the dispute was resolved.
The mother offered to repay the loan in full so the mortgage could be discharged, but the bank still refused to act.
The Banking Ombudsman scheme said it raised concerns with the bank about its refusal to allow the woman to pay off the loan.
“We pointed out the dispute among the three borrowers had no effect on the right of each borrower to repay the loan at any time. The terms and conditions of the loan allowed for just such a step…. [she] held a 77% stake in the partnership so was able to pass resolutions without the consent of the other two partners.”
The bank offered the woman $10,000.
Banking Ombudsman Nicola Sladden said partnerships could be a good way to get into the property market, but the case was a reminder that it was important everyone was clear on their rights and what would happen if circumstances changed.
“When relationships end, joint accounts, loans and partnerships can become tricky. It’s crucial to understand how your accounts are set up, and what your rights and obligations are. This knowledge can prevent a difficult situation from becoming even more stressful.”
She said people should decide in advance how they would divide assets if they separated and get legal advice if they needed formal arrangements.
Mortgage adviser Jeremy Andrews, from Key Mortgages, said he dealt with people wanting to buy in partnership several times a year.
“There are some advantages such as being able to combine everybody’s deposit together to get the best possible interest rates and combining everybody’s incomes together to get the highest approval figure based on income servicing.”
He said the case highlighted the main downside – what would happen when one of the parties wanted to get out of the joint ownership, such as to buy a different property.
“If they are jointly and severally liable for the loan, which is typically higher than a single or couple’s income alone could have allowed, this could be a deal-breaker without selling the property.
“There needs to be a clear understanding of the future implications at that point, before entering into such [an] agreement, and we always recommend each party seeks independent legal advice on this.”
He said sometimes people would own a house as tenants in common, which gave them an agreed and specified percentage of the ownership.
“If the property increases in value over time, then each party receives their respective percentage increase in value each when the time comes to sell – hopefully for an overall profit.
“There are also downsides to this type of arrangement, such as if one or more of the co-borrowers wish to retain ownership of the property and then based on the income they have at the time, can they buy out the other exiting parties share of existing mortgage – plus typically accumulated equity on top of that.”