After a divorce, one of the two spouses may want to keep the common accommodation to become the sole owner. Similarly, after an estate, some heirs may want to keep a property, while others wish to resell it.
A person wishing to obtain the property in joint possession must therefore redeem the shares of the other beneficiaries. This financial compensation is called the cash payment. The repurchase of the balance constitutes the financial transaction between the parties.
How much does the cash buy-back cost? What additional costs should be taken into account? How to carry out the operation and how to finance the repurchase of balance? We tell you everything.
Cash purchase: definition and principle
The cash payment is a financial compensation, that is to say a sum of money that a person must pay to one or more others when he has received goods of a value greater than what he should have obtained..
Legal term, the cash payment is used within the framework of a contract of exchange or sharing of joint possession. It corresponds to the payment of damage that the other parties concerned by the exchange or sharing would suffer.
The application of this compensatory financial measure takes place in particular during an estate partition or a divorce.
So, what is the cash buyout? The redemption of cash indicates the financial operation which consists, by extension, in paying the amount corresponding to the shares that one wishes to acquire.
The most illuminating example concerns the division of property in joint possession following a divorce. If one of the two spouses wants to recover the house bought in common, he must buy back the balance due to the other spouse who transfers to him, in return for the payment of the financial compensation coinciding with part of the property value.
Redemption of cash in the event of divorce
The redemption of cash is a common case in the context of divorce proceedings. However, this issue can only be resolved when the court decision is rendered. The financial compensation operation occurs when it is necessary to share a property in joint possession and one of the two spouses wishes to become the sole owner of the property. The cash payment corresponds to the value of the share of redemption of the house.
Cash purchase and divorce: case of de-bonding
There is also the question of decoupling. A spouse who does not keep the property remains linked to the bank from which the mortgage was taken out. If the ex-spouse can no longer pay the installments, the lending institution sues the two former spouses, whose responsibility is equal even if one is no longer officially the owner.
The latter must therefore obtain his separation from the other from the bank. This formality can be validated at the time of the liquidation of the matrimonial property regime with the notary.
But this task turns into a real headache when the bank refuses to lend to the person who keeps the property, deeming him unable to assume the reimbursement alone. The solution therefore consists in selling the property and sharing the sum.
The redemption of cash in the event of succession
Succession is also the scene of such operations. The principle is identical: several heirs receive part of the real estate in joint possession.
If the value of their share is not indicated in the will of the deceased, the beneficiaries may find a compromise or appeal to the judge in charge of settling the succession and who will determine the value of the property.
The heir (s) who wish to keep the property must pay the other balance to the other joint owners.
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Calculation of the cash buyback
The calculation of the cash buy-back varies according to the property in joint possession concerned. In the context of a separation, it is obviously necessary to take into account the matrimonial property regime.
The amount of the cash payment can be either:
- agreed amicably by the protagonists or by a notary.
- for real estate, the latter will be based on the value of the asset by surveying the market. Then, just take the net value of the property and then divide it by the number of people associated by the sharing.
The formula is as follows:
Balance amount = (Value of the house/2) – (Amount of principal remaining due/2)
In the context of a divorce, the net value of the house, which corresponds to the value of the property to which we subtract the balance of the mortgage or the principal remaining due, is divided by two. Do not hesitate to perform a cash buy-back simulation to assess its cost.
Who pays the notary fees in the event of a cash purchase?
The costs of the notary in the event of a cash purchase are divided between all the heirs in the context of an estate and the two former spouses in the context of a divorce.
Here is an example to understand how the cash buy-back is calculated:
Both spouses initiate divorce proceedings. They jointly own an apartment acquired for $ 250,000. They financed this purchase with a mortgage of $ 200,000. At the time of the divorce, the amount remaining to be reimbursed is $ 100,000. The estimate of the apartment by experts mandated by their notary amounts to $ 270,000.
Decides to keep the apartment, and therefore to make a cash buyout to reimburse the financial loss to his former wife.
The sum is: (270,000/2) – (100,000/2) = 135,000 – 50,000 = 85,000 $
MonsiUSD will therefore have to find the funding to pay the cash payment to his ex-wife ($ 85,000) while being able to repay the remaining amount of the mortgage ($ 100,000), for a total of $ 185,000.
How to finance a cash buyout?
The repurchase of balance is a financial operation but also a notarial act. As a result, the consolidation of balances takes place through a notary.
To initiate the cash buy-back operation, it is sufficient for one of the protagonists to contact a certified notary and draw up their request. It is then necessary to estimate the property in joint possession concerned either by soliciting the notary, or by carrying it out yourself or through a real estate agent.
The notary officially calculates the value of the balance as well as the associated costs.
What happens if no one has sufficient financial cover to buy the balance? The property is automatically put on sale. During the process up to the deed of sale, each party must repay its share of the monthly mortgage payments. It is only after the property is sold that everyone can recover their share.
If the person has the necessary resources, he has no problem buying the balance. Most of the time, this is not the case. The repurchase of balances thus passes by a bank loan, that is to say a traditional real estate loan, which involves an analysis and a verification of its bank accounts and its financial situation.
The ideal is that the applicant has a stable job, regular and perennial incomes and a debt ratio lower than 30%, especially as it is necessary to subscribe a borrower insurance.
If this is not the case, he can improve his situation by requesting a renegotiation of the rate of his mortgage in order to benefit from a reduced interest rate compared to the rates applied during the initial credit. Similar to a loan repurchase, the mortgage can prove to be less advantageous in terms of loan duration and rates.
Some argue in favor of the mortgage (conventional mortgage or bonded mortgage) in the event that the contribution is low or to finance other expenses in addition to the cash payment (work, compensatory allowance, additional cash, etc.).
Good to know: a home loan cannot finance the compensatory allowance. In this case, it is however possible to apply for a personal loan.
Before initiating any process with a bank or a broker, it is imperative that the amount of the cash payment be fixed by the notary. Then, you must build a file compiling the classic supporting documents :