Rising housing prices made for great stories about sharing ownership with friends and family, but as prices have collapsed, in some cases wiping out the equity entirely, fingers are being pointed.
The pointing is coming from lenders and it’s aimed at anyone on the title and named on the mortgage who has assets — or a job — in Canada.
“The banks will go after whoever they will get money from,” said Douglas Hoyes, a licensed insolvency trustee and co-founder of Hoyes, Michalos & Associates Inc.
A recent case is a good example, he said. Three brothers and their father bought a property near the top of the housing market in 2021.
With the average home in Canada down 16 per cent since the February 2022 peak, according to the Canadian Real Estate Association , their property is now $175,000 underwater and has been put into a power of sale, which allows lenders to sell the home when a mortgage is in arrears .
One son lost his job in 2024 and moved back home abroad. Another, who orchestrated the deal, has moved to the United States. The father is retired and living in Mexico on his Canada Pension Plan and Old Age Security payments.
But the third son, still in Toronto, who had only contributed financially to the investment, is now facing a bank that will pursue him aggressively for the loss because he is the only one in the country with assets and a job.
“I can tell you 50 stories that are virtually identical to this one,” said Hoyes. “The key factor in all of these is buying near the peak with minimal down payment.”
Mortgage default insurance is not going to protect you, if you have it. The insurance, often through Canada Mortgage and Housing Corp. , is required if you have less than a 20 per cent down payment and are borrowing from a regulated financial institution, but is designed to protect the bank. The CMHC will still come after you to recoup its loss, sometimes years later.
“I remember a case where it took 10 years for CMHC to go after the guy,” said Hoyes.
Not everybody is turning away from shared ownership plans . Lower prices may even provide a better entry point to the marke t, and co-ownership strategies make more people able to qualify for mortgages.
Noam Dolgin, a British Columbia realtor who co-founded Collaborative Home Ownership BC, said deals are still happening and buyers can include provisions in a transaction that can partially address a fall in real estate prices .
“The vast majority of our deals are mimicking strata life (also known as a condo corporation),” said Dolgin, “You get your own suite, you get your own property but it’s not separately titled.”
Your deal may look structured like a condo but it’s not legally the same thing and you are liable for everyone else’s debt on the property.
In some cases, his company has brought strangers together, but mostly Dolgin’s group will combine family or friends. The math can work, he said.
“We look for properties that might be 30 per cent to 40 per cent cheaper,” he said, adding that half duplexes can start at $1.4 million in Vancouver but a house with the same square footage and two suites an be bought for $2 million.
Most of the properties are held as tenancy-in-common where the parties own a specific percentage of the property. On death, owners’ interest becomes part of their estate and passes under their will.
Even the mortgages can be set up to show payments from each party based on their percentage of ownership and debt owed but at the end of the day anyone on title has to “officially” be on the mortgage and then liable, said Dolgin.
“The co-ownership agreement can deal with delinquency, like if someone stops paying,” said Dolgin. “They can be forced to sell off their share to a third party. One advantage of this is you don’t have to all have the same percentage down and the same mortgage.”
On a $2 million house, two 50/50 partners could have different debt and equity structures. One person could owe $500,000 and the other $900,000 based on different down payments. The caveat: everyone is responsible for the entire mortgage.
“Banks will come after everybody and the property as a whole,” which is why Dolgin said it is key to have a system to make sure it doesn’t get to that point. Agreements can require people to have life and disability insurance to address worst-case situations.
“We see more problems in co-ownership when people don’t do the due diligence and have no agreement and just buy together. That’s when they end up in court and fight over balances,” said Dolgin.
The cleanest way to buy a property would probably be in a corporation but you would lose out on the tax exemption for any gains on principal residence and banks are reluctant to lend to a company with limited liability unless there are personal guarantees placed on the loan.
Toronto real estate lawyer Bob Aaron has seen parents and even grandparents on a mortgage and said they will ultimately be on the hook and there is no way to avoid that liability.
“I once talked to my accountant and he said you know the definition of a guarantor or someone who co-signs: a schmuck (fool) with a pen,” said Aaron, adding parents often put their kids on title for 99 per cent to avoid potential capital gains on a house. “The bank requires that one per cent and you have to be aware if it goes south your are on the hook.”
Jennifer Hughes, a certified financial planner at Modern Cents, which doesn’t sell products or give specific investment recommendations, said shared ownership is happening and she knows a planner who went in on a property with four other people. She sometimes sees seniors pooling together.
“I think you have to go into it with open eyes,” she said, adding that includes managing expectations about how much money will be spent on the property. “The key is, the exit plan is as important as the entry plan.”
Co-ownership should be done through a lawyer with experience in the area, Hughes said, adding the process is “often an eye-opening experience” for uncovering potential friction points. Going a step further with a family facilitator can also bring up family dynamics that haven’t been addressed before.
She said even when prices are rising, shared ownership can go awry when lives change and someone wants to move or sell. “Having an exit strategy is really important,” said, adding estate implications have to be addressed.
Today, it’s all about liability. Hoyes said he understands why no one worried about signing on the dotted line because for two decades all house prices did was go up, with few exceptions.
“What crashed everybody is they assumed real estate could go up forever,” he said. “If you are the last person in a game of musical chairs, you lose. Those people who bought at the peak are getting the chairs pulled out from under them now.”
• Email: gmarr@postmedia.com