The arrival of a divorce or separation of co-owners usually brings with it several headaches. To the sentimental question, we must add the economic part, especially when there is a mortgaged property. In these situations, many consider the extinction of condominium , a process by which a property owned by several people is transferred, allowing 100% of the property to belong to only one of the co-owners.
What is the extinction of condominium?
Termination of joint ownership is used when two or more people own a property in joint ownership , as in the case of a married couple with a community property regime. In this process, one of the co-owners transfers his or her share in exchange for financial compensation. For example, one spouse can transfer his or her 50% of the property to the other, who assumes the mortgage and becomes the sole owner.
Advantages of the extinction of condominium
One of the main advantages of the termination of joint ownership is the reduction in taxes. In this case, only the Stamp Duty (IAJD) and notary fees are paid, avoiding the Property Transfer Tax that would have to be paid in a conventional sale. In addition, the termination of joint ownership does not subject to the Urban Land Value Tax (capital gains tax), which represents a significant tax relief.
Disadvantages of the extinction of condominium
However, it should be noted that, when a joint ownership agreement is terminated, one of the owners ceases to be so before the Property Registry, but not before the financial institution. This means that, even if you are no longer a co-owner of the property, you will continue to be a co-owner of the mortgage, unless a new mortgage or a subrogation is made.
Therefore, if your ex-partner, who keeps 100% of the property, stops paying the mortgage loan installments and the outstanding debt is not covered by the auction of the house, the bank may take legal action against you, affecting your assets.
Final Considerations
To avoid future problems, it is essential to ensure that the bank agrees to remove your name as a debtor. This involves negotiating with the financial institution to authorize a new mortgage that does not include you as the owner. In this way, the termination of the condominium can be formalized and it will be clear who is the new owner and debtor of the mortgage loan.
Furthermore, from a tax point of view, if the transfer of ownership is agreed at the same purchase price, the party transferring its percentage will not have to compute capital gains in its Income Tax return.
Termination of joint ownership can be a practical solution in separation situations, but requires careful consideration of the legal and financial implications.