Default

What It Means

Default in co-ownership occurs when a co-owner fails to fulfill one or more obligations defined in the Co-ownership Agreement. These obligations typically include making timely contributions to mortgage payments, property taxes, insurance, and Shared Expenses, as well as complying with occupancy terms, maintenance responsibilities, and transfer restrictions.

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Default in co-ownership is distinct from mortgage default. A co-owner can be in default under the Co-ownership Agreement — by failing to pay their share of expenses — without the group being in default on the mortgage itself, provided the remaining co-owners cover the shortfall. However, because all Co-borrowers are bound by Joint and Several Liability, one co-owner's failure to contribute still exposes the entire group to financial risk.

How Default Is Handled

A well-drafted Co-ownership Agreement defines default with precision: what constitutes a default event, the notice and cure period (time given to remedy the breach), and the consequences if the default is not cured. Consequences may include financial penalties, loss of governance rights, mandatory Buyout at a defined valuation, or initiation of a contractual Forced Sale mechanism.

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The notice and cure structure is critical. It gives the defaulting co-owner a defined opportunity to correct the breach before escalation — reducing the likelihood that a temporary hardship becomes an irreversible dispute.

Why It Matters for Co-owners

Default provisions protect co-owners who are meeting their obligations from bearing the financial consequences of a co-owner who is not. Without defined default terms, a non-contributing co-owner can remain on the Deed and the Promissory Note indefinitely — retaining the benefits of ownership while shifting costs to the remaining co-owners.

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Clear default definitions also reduce the risk of disputes escalating to a Partition Action. When every co-owner knows in advance what constitutes a breach, what remedies are available, and what the timeline looks like, disagreements are more likely to be resolved within the agreement's framework rather than through litigation.

Key Points

• Occurs when a co-owner fails to meet obligations defined in the Co-ownership Agreement
• Distinct from mortgage default — a co-owner can default on agreement terms while the mortgage remains current
• Common triggers include missed expense contributions, occupancy violations, and unauthorized transfers
• The agreement should define notice periods, cure windows, and escalation consequences
• Consequences may include mandatory buyout, financial penalties, or forced sale
• Clear default terms reduce the risk of disputes escalating to litigation