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Finance Insurance

The main problems of the joint mortgage

The mortgage’s pros and cons made out to several people: passive solidarity, debts, risk of foreclosure, and separation. 

When a married couple buys a house in the community of assets, the bank requires both of them to sign the loan agreement. It is just one of the hypotheses of a joint mortgage. The same solution could well be verified, for example, in the event that a young man with a low income applies for a loan and, to guarantee compliance, the branch also requests the obligation of a family member, for example, the father. 

The joint loan thus fulfills the same function as the surety: to add an additional person to guarantee the return of the money.

Naturally, if, on the one hand, this solution facilitates the granting of the loan by increasing the guarantees for the lender, it ends up doubling the risk on the passive side. Therefore, we can say that among the main problems of the joint loan, there are the so-called “joint and several liabilities” towards the bank. 

Joint mortgage: is it mandatory?

Often, the banks ask for a double signature on the loan agreement. This happens, as anticipated at the beginning, in the case of a married couple in the community of assets who stipulates a loan for the purchase of a property. 

However, the joint mortgage can also be used in the case of a cohabiting couple who decides to buy a house and make it payable to both. And this can also happen between shareholders and companies for a loan granted to the latter. 

The purpose of the joint loan is to increase the guarantees for the bank, which, in this way, can overcome any filters on the granting of the loan deriving from the economic conditions of the applicant. The addition of another joint holder, in fact, allows the creditor to act indifferently against one or the other in the event of default (more on that shortly). In this way, if a person is not responsible for sufficient income to obtain the loan, he will be able to achieve his goal through joint registration with another more solvent person.

The joint mortgage is not an additional mortgage figure. It can be any type of mortgage, with the difference that the borrower is made up of several subjects (which can be natural or legal persons). 

Joint mortgage: differences with the surety

As anticipated, the typical function of the joint title of the loan is to double the guarantees for the creditor bank, which, in the event of default, rather than retaliating against a single person, can do so against two or more (i.e., against all the joint holders). 

It is, therefore, the same purpose that is usually obtained through surety. But with some differences. 

The surety could, in fact, contain limitations for the bank. First of all, the so-called ” preventive enforcement benefit ” could be envisaged because, if the installment were not to be paid, the credit institution would be obliged to act first against the principal debtor and then against the guarantor. Instead, in the joint mortgage, the creditor can act indifferently against all the joint holders even at the same time.

Secondly, in the surety, the guarantor is only liable for the debt contracted by the principal debtor at the time of stipulation of the original loan; therefore, if at a later time the bank were to extend the credit without the guarantor’s consent, the latter would not be liable for such further debts.

Joint mortgage: pros and cons

The main advantage of the joint loan can be perceived above all in the phase of granting the loan itself, which, as mentioned, is easier than the hypothesis in which a signatory is a single person. 

But not only. If in the event of the insolvency of one of the two joint holders (think of a sudden and unpredictable dismissal), the latter should no longer be able to pay the installments, there would always be the guarantee of the other who, in this way, paying the due to the bank, will avoid real estate foreclosure. In short, the risk of a judicial auction recedes.

However, the joint title of the loan does not increase the real guarantees: if, in fact, the harness is covered by a Silent second mortgage, this will always remain unique and of the same value even if the mortgage holders are two or more people. 

The tax deductions linked to the loan’s interest expense are due to all the joint holders of the loan if they are also co-owners of the house.

For example, two spouses who are joint owners of a mortgage and co-owners of the home can deduct 19% of the interest paid each for the relevant share.

As regards, however, the disadvantages of the joint loan, these are above all to be identified in the so-called “passive solidarity” or “joint liability”: all borrowers are obliged to pay the entire debt. With the consequence that, in the event of default, the creditor will be able to take action against each of these for the entire amount. 

If one of the joint holders were to undergo foreclosure, he could then retaliate against the other joint holder, obtaining from them the return of his share of the joint loan.

Therefore, all the co-holders are responsible for the bank, but in the relations between them, the agreed quotas are valid (at 50% unless otherwise indicated).

Another problem with joint ownership is that it does not allow the joint holder to exit the mortgage unless with the consent of the bank. Alternatively, the parties can decide to sell the asset – although there is a loan in progress – and, with the proceeds, first pay off the debt with the bank by dividing any residual.

The dispute of the loan presents various problems in the event of the separation of the married couple. When both are joint holders of the loan, even after the separation, the debt remains with both, regardless of the fact that the agreements between them, in constant marriage, provided that the payment of the installment was taken care of only by one.

Corrado and Giovanna are two young newlyweds who buy a house by jointly holding the mortgage. After a few years, the two separate. The judge assigns the house to Giovanna because her children go to stay with her. Corrado stops paying the creditor. At this point, the bank will be able to retaliate against Giovanna by starting foreclosure on her. 

Also, it is not possible to solve the problem with the bank without the latter’s consent or, possibly, by selling the asset and paying off the residual debt. 

A further solution would be to replace one of the joint owners with another, again with the creditor’s agreement, or to increase the collateral (for example, add a second mortgage). 

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