Calculate the shortfall before deciding how to divide it
Use the current home value and payoff amounts for all secured loans. Selling expenses can increase the amount still to fund. The example below separates the property shortfall from the additional sale costs.
Illustrative amounts, with no assumed tax or lender concession.
| Calculation | Amount |
|---|---|
| Home value | $280,000 |
| Secured debt to repay | $300,000 |
| Shortfall before costs | $20,000 |
| Illustrative sale costs | $10,000 |
| Total shortfall | $30,000 |
An expressly selected equal split would allocate $15,000 to each person in the scenario. It does not change their contractual obligations to the lender.
A debt split does not release a borrower
An agreed 50/50 division describes how you propose to share the shortfall between yourselves. It does not change the creditor’s contract. Ask the lender what it requires for the proposed sale, repayment and release, and obtain local advice before committing to an amount.
The buyout versus selling comparison can help separate the costs of the two routes. Neither route should be assumed possible merely because you have divided the shortfall on paper.
What happens to the original deposit?
A down payment is already tied up in the property. It is not a separate pot of money available to return after the home loses value.
If contribution credits exceed the available equity, our return-first method stops. You can use a selected percentage to compare a shortfall in the house buyout calculator. Any proposed repayment beyond the property’s equity needs to be identified and reviewed separately.
Record the cash each person could contribute
For a proposed sale or buyout, record who could provide funds, how much and by what date. Keep that funding proposal open until the amounts and lender requirements are checked. In the inventory, a property worth less than its mortgage is recorded as a debt for the difference. Do not also add the same mortgage as another debt.
Check any debt forgiveness separately from the shortfall
Ask the lender to state in writing what would remain payable after the proposed transaction. Do not label an unpaid balance as forgiven simply because a sale price has been accepted.
Tax consequences need a separate check. In the United States, canceled debt can count as taxable income, subject to exceptions and exclusions. A lender concession should therefore prompt a review of the taxes and fees associated with a home buyout, not just a lower settlement figure.