Disclaimer: This article is for general informational purposes only and is not legal advice. Laws change and every situation is different. Consult a licensed North Dakota attorney and your mortgage lender before making legal or financial decisions.
Detailed Answer
Below is a practical, step-by-step guide to how a typical refinance + buyout of a co-owner works in North Dakota. The process combines mortgage/lender requirements, property valuation, title transfer, and (if needed) court remedies under North Dakota law.
Quick overview
If one co-owner wants to keep the property and remove the other owner, the common path is:
- Value the property and agree on a buyout amount (often the co-owner’s share of equity).
- Buyer-owner qualifies for a refinance that pays off the existing mortgage and provides cash to buy out the co-owner (a cash-out refinance or a new loan in the buyer-owner’s name).
- The seller-owner signs a deed (often a quitclaim or warranty deed) transferring title; the deed is recorded with the county.
- The lender records its mortgage (or deed of trust) against the property in the new sole-owner’s name.
Hypothetical example (illustrative)
Two co-owners (Alex and Jamie) own a Fargo house worth $300,000 with a mortgage balance of $150,000. Jamie wants out and asks for $75,000 (half the current equity). Alex plans a refinance in Alex’s name to pay off the $150,000 mortgage and take $75,000 cash to pay Jamie. After appraisal and lender review, if Alex qualifies for a new mortgage of $225,000 (75% LTV), the lender pays off the old mortgage and provides the funds for Jamie’s buyout. Jamie signs a deed transferring title to Alex alone, and the deed is recorded.
Step-by-step process
1) Confirm ownership, mortgage lien, and legal interests
Start by reviewing the deed and county records to confirm how title is held (joint tenants, tenants in common, tenancy by the entirety if married, etc.) and whether there are liens. In North Dakota, deed and lien records are maintained at your county recorder’s office. If the co-owners hold title as ‘tenants in common,’ either may generally sell their share, but practical transfer requires cooperation or court action.
2) Agree a buyout amount or get a valuation
Get a professional appraisal or two broker price opinions. The buyout amount is usually the co-owner’s equity share (current market value minus outstanding liens, divided by ownership shares). Parties can negotiate alternate arrangements (installments, promissory note, or seller financing).
3) Decide how the buyout will be funded
Common options:
- Refinance in the keeping-owner’s sole name with cash-out to pay the other owner.
- Buyer-owner obtains a new mortgage or home equity loan to buy out the co-owner.
- Buyer-owner and seller-owner agree on seller-financed installment payments (documented with a promissory note and mortgage).
- Co-owner assumption of the existing loan (rare unless lender approves and borrower qualifies).
4) Refinance steps and lender requirements
Typical lender steps for a refinance to effect a buyout:
- Prequalification — lender reviews income, credit, and debt-to-income ratio.
- Appraisal — lender orders an appraisal to determine allowable loan amount (LTV limits apply).
- Underwriting — lender reviews title, verifies there are no problematic liens or restrictions.
- Closing — refinance loan pays off the prior mortgage. If the lender issues cash-out funds to the borrower, those funds are used on closing to pay the co-owner or fund the buyer’s escrow instructions for the buyout.
Important: Many lenders will not close a refinance that leaves the seller-owner on title; they usually require that the deed reflect the person(s) signing the new note. That means the co-owner being bought out must sign away title (deed) at or before closing. Coordinate the timing of the deed transfer, lender requirements, and payoff instructions carefully with your title company or closing attorney.
5) Transfer of title and recording
After the buyout payment and at closing, the seller-owner should sign a deed transferring their interest (a quitclaim deed is often used between co-owners; a warranty deed may be preferable for stronger assurances). The deed must be properly signed, acknowledged, and recorded at the county recorder’s office where the property is located. Recording protects the new owner and lets third parties know the change in ownership.
6) If a co-owner refuses to cooperate: partition action
If the other owner refuses to sell or deed their interest, the keep-owner may file a partition action in North Dakota district court to force a sale or divide the property. Partition procedures and remedies are available through North Dakota courts. See North Dakota court resources for civil actions and property disputes at the North Dakota Courts site: https://www.ndcourts.gov. For statutory guidance on civil actions and property remedies, consult the North Dakota Century Code at https://www.legis.nd.gov/cencode.
7) Title insurance, payoff statements, and closing costs
Obtain a title search and title insurance at closing to ensure there are no undisclosed liens. Get payoff statements for any existing mortgages and verify prorations (taxes, insurance). Expect closing costs: lender fees, appraisal, recording fees, title insurance, and possibly transfer taxes or mortgage tax (if any).
8) Tax and financial considerations
Buyouts may have tax consequences (capital gains, gift tax concerns if transfer is below market, mortgage interest deduction changes). Consult a tax advisor. Keep records of the transaction, promissory notes, and closing documents.
9) Document the agreement
Even when owners agree, document the arrangement with a written settlement agreement describing the buyout price, timing, and responsibilities. If the departing owner accepts payments over time, use a secured promissory note and mortgage/deed of trust so the seller has a security interest.
North Dakota-specific points
- Recording and title issues are handled at the county level; check the county recorder’s requirements for deed forms and recording fees.
- If court intervention is required, property partition and civil actions proceed in North Dakota district courts; related civil procedure and remedial rules are in the North Dakota Century Code and court rules (see North Dakota Century Code and the North Dakota Courts website: https://www.ndcourts.gov).
- North Dakota follows standard real estate practice: lenders want the borrower on the new mortgage to also hold title in the same capacity that the lender needs (so coordinate deed transfers and loan documents).
Helpful Hints
- Start with a title search. That will reveal liens, judgments, or recorded interests that affect your ability to refinance or transfer title.
- Talk to potential lenders early. Lender underwriting rules determine whether you can obtain a refinance large enough to fund a buyout.
- Get an appraisal early — market value determines how much cash you can pull out.
- Use a written settlement agreement documenting the buyout terms, especially if seller financing or installment payments are involved.
- If one owner refuses to cooperate, consider whether a partition action is worthwhile: it can force a sale, but it may be expensive and outcome uncertain.
- Make sure deeds are properly signed, notarized, and recorded. An unrecorded deed can create serious problems.
- Consider title insurance to protect against hidden defects in title after purchase.
- Consult both a North Dakota real estate attorney and a tax advisor before signing anything final.