Canada co-ownership risks rise as falling home prices create debt gaps

As Canadian real estate prices decline from recent peaks, individuals who purchased properties through co-ownership with family or friends are facing significant financial risks. A notable case involves a father and three sons who purchased a home in 2021; the property is now in a ‘power of sale’ process, with its value approximately $175,000 below the remaining mortgage balance.

Experts warn that when properties enter foreclosure, lenders often pursue the co-borrower with the most stable income and assets. In many cases, even if family members have private agreements regarding who pays what, banks typically hold all signatories jointly and severally liable for the full debt. This means a resident in Canada with a stable job may be held responsible for the entire shortfall if other co-owners have moved abroad, become unemployed, or lack assets.

Furthermore, mortgage default insurance in Canada is designed to protect lenders rather than borrowers. If a home is sold for less than the mortgage amount, the insurance does not absolve the borrowers of the remaining debt. Professionals recommend that co-owners establish formal co-ownership agreements to define exit strategies, cost-sharing, and responsibilities in the event of death, divorce, or financial hardship.