1. A young couple (husband and wife) are purchasing a house but they do not have enough income to qualify for the mortgage they need;
2. They decide to add the wife’s father’s income to qualify for the mortgage;
3. The Lender agrees but wants the father to be added to title rather than getting a guarantee from the father;
4. A lawyer that represents the young couple is instructed to add the father as a 1% owner with the couple owning the remaining 99% as joint tenants.
Question - in what capacity does the father hold his 1% interest in the Property?
Issues & Concerns - there are only two capacities under which the father could hold his 1% interest in the Property. Both capacities present their own issues and concerns to be addressed before closing.
The father either owns the Property:
1. As a trustee for the couple; or
2. As a co-owner on his own behalf.
If the father owns the Property as a Trustee, which is most likely the situation, then the following must be done:
· Need evidence of the trust - Declaration of Trust;
· Need to advise the Lender;
· Need to verify if this meets the Lender’s requirement that the father be a part owner;
· Need for father to provide a separate guarantee;
· Need for father to obtain an Independent Legal Advice as to whether he is to be liable for entire mortgage debt.
If the father owns the Property as a Co-Owner, then the following must be done:
· As a co-owner, the father needs co-owners agreement setting out his rights. Especially relevant if the father dies or becomes incapacitated (must deal with fathers personal representatives, attorney or trustee of his estate);
· Co-owner has absolute right for Partition Act order for sale of the Property;
· As a co-owner, the father needs either Independent Legal Advice or Independent legal representation for this transaction;
· The young couple needs either Independent Legal Advice or Independent legal representation for this transaction.
The lawyer if involved in the transaction must remember that he now may have 4 clients to balance their interests and to protect them:
1. The Lender;
2. The father;
3. The husband;
4. The wife.
The lawyer must make sure he provides his advice in writing, as well as record his warnings and the instructions he receives.