Legal Question in Real Estate Law in New York

There are many ways to restructure the deal. First, I assume that when you say "partnership" you really mean that the purchasers agreed to share expenses. A true partnership is a business in which the partners share the profits and losses. One way, if you are both agreeable, is to accept that you are going to bear more than your fair share of the expenses and to write up (and possibly to record) an agreement that you and your co-owner will render an accounting to each other, either monthly or quarterly, and to the extent you paid more than your share, you run a tab. When you sell or refinance the house, you get paid the extra amounts that you paid (with interest: if you don't charge interest, the IRS will tag you with income tax liability as if you had received interest, so it's a double whammy).

The tricky part is that if you do not record the agreement, then your co-owner could sell his/her share in the house to a stranger, not pay you, and leave you without a good remedy. Be aware that your co-owner already has the ability to sell his/her share to the housemate from hell and you could not stop that. And if you just record the agreement, the county clerk might say that this is like a mortgage for an indefinite amount and charge you mortgage tax on the full market value of the house. Mortgage tax can be significant, as much as 2.6% of the value of the house. Recording a deed, or holding a deed in escrow, is just as bad, or worse, because a deed held as security for another obligation is taxed as a mortgage, with a likely penalty for not paying the tax within 15 days after you got the deed (even if you don't record it).

A better way would be to form a limited liability company or a corporation. The main difference is in the expense of filing and publication. You can probably find a service company that will incorporate you for around $300, but a limited liability company, while it costs the same to form, is also supposed to publish a notice in two newspapers in the county. This can be expensive. Most LLC's don't publish until they have to go to court, see http://eminutes.com/what-happens-if-you-ignore-new-york’s-llc-publication-requirement.

There is no transfer tax to deed the property into a corporation or LLC if the members of the company are the same as the owners. It's called a "mere change of form." Then you adopt by-laws (for a corporation) or an Operating Agreement (for an LLC) that lays out how much each person's share is and grants the person who pays more a lien on the shares or ownership interest of the person who's not paying his/her share. To make sure this works, you would not issue share or ownership certificates to the members: their interests exist on the corporation's books and records. YOU MIGHT NEED TO DO MORE, LIKE FILING A "FINANCING STATEMENT" WITH THE COUNTY CLERK OR SECRETARY OF STATE. You should actually consult an attorney (for real, not on a bbs like this) to make sure you're protected.

If your co-owner does not agree, then you have at least three legal remedies. First, you can ask a court to award you an "Equitable Lien" on the property. Second, you can sue your co-owner for the amount of the shortfall. And third, you can sue for partition of the property and for an accounting of the proceeds. Partition is a forced sale, but it usually resolves with one co-owner buying out the interest of the other.

All of these remedies, including the corporation/llc route, are complicated if there is a mortgage on the property.