I might be worried for no reason but I would really like to get a second opinion. My friend and I have known each other for about 20 years. I divorced about 3 years ago. About 3-4 months later, she started having martial problems and moved in with me until her divorce was final about 9 months later. We decided to buy a larger house on our own (50% each) and live together until our kids are grown and go off to college (about 5-6 years from now). Her house was sold and proceeds split between her and her ex. Me and my ex worked out a mutually acceptable arrangement. Both of our divorces are final and no past issues involving our divorces are of concern now. We lived together in my house until we found a larger house to buy about 18 months ago.

She wanted to finance her half and I wanted to pay cash for my half, out of the equity in my house, so I would not have any house payments. So, I put my house up for sale and we started looking for a larger house. We found the house we were looking for but my house was under contract and I didn't have the cash yet for my half.

She agreed to buy the house and finance 100% until my house closed and I received my equity. We both went to her bank, explained the circumstances and they financed the deal to her 100% and we (or she) bought the house. My house closed about 5 weeks later and I received my equity check. I explained these circumstances to my closing Attorney. He prepared a "General Warranty Deed" for us (which was required by her bank). We both took the Deed to her bank. I wrote a check (paid cash) to her bank for exactly 50% of the amount she financed. Her bank then refinanced the balance of 50% of her loan. We signed the general warranty deed and her loan officer notorized the deed. Her loan officer at her bank explained to us that I would be listed on the deed as 50% owner of the house but not listed on her mortgage. (The deed states: "Warranty Deed (Without Survivorship)" "No Title Examination") -- This protects our children's rights to each of our half in the event of either of our death.

Here is where my worry starts. She has developed some financial issues and is begining to have some problems with her house payments. She has applied for a home equity loan and is waiting for approval. I don't have the details of the amount of the loan or who the loan is with. I have not and would not agree to sign for her home equity loan or in anyway be responsible for it. She has always made her payments and I have never made any payments since I own half. Right now all the payments are current and everything is OK.

I did some checking and found out that her bank never did record the new deed at the courthouse. These circumstances are worrisome and pose several questions:

How can I protect myself (or my half) if she defaults on her payments?
Do I need to get the deed recorded at the courthouse?
If she defaults on her payments can the bank foreclose on my half too?
If she gets a home equity loan (which I would not sign for) then defaults, where does that leave me?
Do I need to have title insurance on my half? If so, how do I do that?

Please help -- Worried in Alabama -- TIA :)

You have really got yourself into a huge mess, one that you may not get out of without a few scars and financial hits.

You say that you do not have your name on the mortgage. In that case, if she defaults, you could lose your half of the house if it is foreclosed on and brings less at a sale than it is technically worth. What's even worse, she is applying for a home equity loan on your half of the investment since she still owes nearly for half the house. So, do you not think you should trump this action before she takes it? In retrospect, if you were going to do this thing, you could have at least signed on with the mortgage and then paid half the house payment along side her. That way, if she was to feel the need to get out of the mortgage, you would have at least had your money to rely on until you sold the house. I hope there is an attorney from Alabama here that can help you sort this out because you are sitting on a ticking time bomb that will blow when you least need a disaster.

I don't want to 'kick you while you're down', but you should have never agreed to this 'partnership' of sorts. I hope you get it worked out without losing your friend, your house or both.