PLAN A –
First, draft up an agreement, with a property lawyer stating that you will recognize owner #3’s stake after the refinance. Include all the contingencies necessary to make them comfortable (e.g. what happens if refinance doesn’t go through, etc)
Explain to owner #3 that the situation will be beneficial to all if you re-fi. Holding costs will go down and owner #1 and #2 will not be forced to sell or default on the loan.
PLAN B –
If that does not work, the partnership is not working. Dissolve it by any means necessary.
Easiest way is to sell the property. If owner #3 doesn’t want to sell, sue them or stop making payments, whatever it takes. Offer to buy them out for half their loss. (They pay you 25K to take their name off the property).
If they cannot go along with plan, tell them you will let it foreclose and sue them for half the loss (assuming that your agreement or partnership of 50% stake is documented).
Lesson Learned:
Never set up ownership stake in property where the incentives are unequal among the parties. By having one party make a down payment and other parties make the monthly payment, this puts parties into different boats, with different incentives. If one party is cash poor and the other makes the down payment, have a separate loan agreement among the owners to each other, but still have all three on the loan.
