Anyone ever used equity from a co-owned property?

Question

I'm looking for any advice on how to use my equity from a property I co-own. It's a single family house, and I would like to use a HELOC for re-investing purposes but I do not want to have my co-owner be responsible for the loan. I can take out the heloc in just my name, but it ties up all of the equity in the property because only one line of credit can be taken on the house.  My co-owner will also need to sign paperwork to put a lien on the house due to the Heloc and he will be responsible if for any reason I'm unable to pay it back, like I get hit by a bus and can't work or something. One never knows.

Is there anything I can do - create a contract for example - that would not hold my co-owner responsible if something did happen? Any way around this at all so that I might be able to use the equity? They are personally ok with me using it, but I need to make it clear that somehow he will be ok if something did happen.

Has anyone ever been in this situation? Any advice is greatly appreciated! Thank you, Kaylyn

Kaylyn T. · Answer

Thank you for responding Ellis. My bank will and have in fact agreed to give me the heloc - it's under my name only - but my co-owner does have to sign a document saying the bank will put a lien on the property in the event I forfeit payment on the heloc. My co-owner is willing to sign the a document, however in return they want some kind of guarantee that in the event something happens to me, someone like my family would have to repay the heloc that is in my name. The mortgage is only affected if the heloc is not repaid. I do have an attorney that I've spoken to about it, but they aren't sure there is a legal way to do it. He said he can draw up documents that say in the event I'm unable to pay that someone else would pay for me, but to legally bind that person to that agreement is difficult. Which is why I was wondering if anyone had a similar situation and knew of a fair way to make it work.

Thank you! Kaylyn

Ellis San Jose · Answer

Traditional lending sources won't be available in this case as title is today.  Co-ownership creates a multitude of issues with lenders.

Is your co-owner willing to deed you their share of the ownership so you would have 100% ownership on title?

If so, then after the HELOC is recorded your co-owner can record a junior deed of trust to the HELOC in exchange for their equity position.

Since I am not an attorney, I would suggest you consult with one to assist going forward. I am in the Los Angeles area as well & can refer you to one if needed.