Refinancing and Buying Out a Co-Owner in New York: Process, Options, and Next Steps

Detailed Answer

This FAQ explains how one owner can refinance a property and use the proceeds to buy out a co-owner under New York law. The goal is to explain the practical steps, legal points to watch, and options if the other owner disagrees. This is general information and not legal advice.

1) Who owns the property and why that matters

Start by confirming how the property is titled. Common forms of co-ownership in New York include:

• Tenancy in common — each owner holds an individual, transferable share. Either owner can sell or mortgage their share, but they cannot alone convey title to the whole property.
• Joint tenancy — owners share rights of survivorship; a surviving joint tenant inherits automatically.
• Tenancy by the entirety — generally available to married couples and provides special protections against unilateral transfer by one spouse.

Title form affects what you can do without the other owner’s agreement. If you are unsure how title is held, get a copy of the deed from the county clerk’s office or your title company.

2) Two basic pathways to a buyout

There are two common approaches:

1. Refinance in one owner’s name (or a new joint loan) and use the cash to buy out the other owner. This is the most common route when one owner can qualify for a new loan and there is enough equity to cash out the co-owner’s share.
2. Seller financing, personal loan, or lump-sum payment from the buying owner. If refinancing is not possible, the buying owner might use a home equity line, personal loan, or savings to pay the co-owner and then later refinance solely in their own name.

3) Step-by-step: How refinancing to buy out usually works

1. Get an accurate payoff and title picture. Determine current mortgage payoff(s), other liens, arrears, and the owners’ equity split.
2. Get a professional appraisal or broker price opinion. Lenders will require an appraisal for a refinance or cash-out.
3. Run credit, income, and debt-to-income checks. The buyer (the person taking the new loan) must qualify alone (or with co-borrower) for the new mortgage amount.
4. Decide on the buyout amount. Typically this equals the co-owner’s percentage of net equity (market value minus liens and closing costs). Agree on price in writing.
5. Choose loan product and apply. For a cash-out refinance, the lender pays off the existing mortgage(s) and provides funds to the borrower that can be used to pay the co-owner at closing.
6. Execute documentation to transfer ownership. After funds are available, the selling co-owner signs a deed (often a quitclaim deed) transferring their interest to the buyer. The deed must be properly acknowledged and recorded.
7. Record mortgage satisfaction and new mortgage. The old mortgage is satisfied and released; the new mortgage is recorded against the property.
8. Pay transfer taxes and closing costs. Closing costs, recording fees, and transfer taxes may apply. Consult the New York State Tax Department for transfer tax rules: https://www.tax.ny.gov/pit/real_property/transfer.htm

4) Common lender requirements and practical issues

• Lenders look at the borrower’s credit score, income stability, and debt-to-income ratio. Qualifying alone may require stronger credit or a lower loan amount.
• Loan-to-value (LTV) limits control how much cash you can take out. High LTVs or cash-out refis may be limited.
• If the co-owner is on title but not on the mortgage, removing them from title requires a deed transfer; the lender typically wants the borrower on title or otherwise satisfied about ownership changes.
• If the property has multiple mortgages, the new loan must pay them all off or otherwise address subordinate liens.
• If you cannot qualify alone, you may need the co-owner to remain on the mortgage temporarily or co-sign, or explore other financing sources.

5) What if the co-owner refuses to cooperate?

If the co-owner will not sell their share, the buyer has limited options:

• Negotiate: offer a higher buyout price, payment plan, or other terms to reach an agreement.
• Partition action: file a partition suit asking the court to divide or sell the property and distribute proceeds. In New York, partition actions are governed by the Real Property Actions and Proceedings Law; see the statute on partitions at https://www.nysenate.gov/legislation/laws/RPAPL/901 and the New York Courts’ guide to partition actions at https://www.nycourts.gov/courthelp/RealEstate/partition.shtml
• Refinance and buy out via a structured settlement: sometimes owners agree to a deed in exchange for periodic payments (seller financing) if a bank loan is not available.

6) Recording the deed, mortgage releases, and taxes

When the selling owner signs a deed, have it properly notarized and recorded in the county where the property is located. Make sure any prior mortgage is released in the county records. Check New York State transfer tax rules and whether local (city/county) transfer taxes apply: https://www.tax.ny.gov/pit/real_property/transfer.htm

7) Documents and information to gather before you start

• Current deed showing how title is held
• Current mortgage statements and payoff amounts
• Recent property tax bills and utility bills
• Current homeowner’s insurance declaration page
• Photo ID and social security information for loan application
• Income documents: pay stubs, tax returns, bank statements
• Any written agreement between co-owners (operating agreement, buy-sell, etc.)

8) When to talk to an attorney

Consider hiring an attorney if:

• The co-owner refuses to sell and you may need a partition action.
• Title is unclear, joint debts are disputed, or there are complicated liens.
• You need to draft a buyout agreement, payment plan, or seller-financing documents.
• Tax consequences or estate planning issues may affect the transaction.

For information about partition actions and procedures under New York law, see RPAPL §901: https://www.nysenate.gov/legislation/laws/RPAPL/901 and the New York Courts partition guide: https://www.nycourts.gov/courthelp/RealEstate/partition.shtml

9) Example (hypothetical) scenario

A and B own a house as tenants in common. Market value is $500,000, outstanding mortgage is $200,000, so net equity is $300,000. A wants to keep the house and buy out B’s 50% share ($150,000). A applies for a cash‑out refinance for $350,000. The new lender pays off the $200,000 mortgage and gives A $150,000 in cash at closing. A pays B $150,000 for B’s deed, records a quitclaim deed transferring B’s share to A, and records the new mortgage. A now owns and carries the mortgage alone.

Helpful Hints

• Get a written buyout agreement. Even a simple signed agreement avoids later disputes.
• Get an independent appraisal so both sides understand fair market value.
• Shop lenders early. Different lenders have different cash‑out and qualification rules.
• Ask the lender whether they require the co-owner to sign any documents when they remain on title but will not be on the new mortgage.
• Check for existing agreements (operating agreements, partnership agreements) that may set buyout rules. Those control if they exist.
• Plan for closing costs, transfer taxes, and recording fees; they reduce the net amount available for the buyout.
• If the co-owner is a spouse, tenancy by the entirety rules may limit your options—consult an attorney.
• If you expect to need the court (partition), be aware that litigation is time-consuming and costly; settlement is often more efficient.

Disclaimer: This information is educational only and not legal advice. It does not create an attorney‑client relationship. For guidance tailored to your situation, consult a licensed New York attorney.