The Trouble with Schemes

You can well imagine that in my business we see  a lot of different arrangements for home ownership.  I must say that even after 25+ years in the business I'm still shocked at the creative ways people achieve home ownership. 

But a scheme is a scheme and while they make perfect sense to you they usually come unravelled and it's never pretty.  Take the case of the friend who bought a house for her friend to get her through an ugly divorce.  The deal was in three years when everything had settled down the person going through the divorce would take over, remortgage and pay her friend back.  The benefit to person going through the divorce was a roof over her head for her children, no apparent assets to declare in the divorce and the chance to build some equity for her future.  The benefit to the friend?  The house is in her name and she owns it.  Technically she can do what she wants with the house.

Fast forward 3 years.  It's time to take over the house and the divorce is still in the "ugly" stage.  Settlement has not been achieved and what has been decided has been screwed up by the courts interpretation of the agreement.  At the root of the fight is some joint credit that is now seriously in arrears.  But there is now equity in the house and taking it over will give our subject some net worth.  Not so fast.....

Here's how a lender sees it.  You didn't pay your bills.  End of story.  You had a contract to pay and seriously the lender doesn't give a crap about your personal arrangement.  You both signed a contract agreeing to pay the debt.  Any sudden asset in your name shows you acquired some net worth while neglecting what you already owe.  A creditor will see you has having built net worth using their money - the money you neglected to pay them. 

So what happens now?  If this scheme, okay "arrangement", is to conclude this client must pay back 100%  of the joint debt under question.  What a waste of three years!  If you're thinking of divorcing make sure you understand the rules around credit.  Don't let the courts decide because they will take years to state the obvious and all you can do is scheme your way into a mess. 

As for this case?  Well I guess the friend who owns the house will have to decide what she is going to do with it.