Tuesday, May 01, 2007

query: non-borrowing spouse rights

I have to limit my response to PA. Spousal rights vary from state to state.

Pennsylvania is not a community property state. We don't have dower rights in Pennsylvania. Theoretically married individuals can buy and sell property on their own without their spouse.

Our divorce law, however, mucks up title because a party in a divorce action can make a claim that marital property was used to purchase, maintain or improve the real property. These potential marital rights must be dealt with.

The specific query speaks to the rights of a non-borrowing spouse. To that end, I am limiting my comments to matters of creating a valid lien for the mortgage lender.

To create a valid mortgage lien in PA, the title agent will require that the non-borrowing spouse go on record approving the mortgage. This can take the form of a recorded spousal waiver, subordination of marital rights or simply signing the mortgage instrument.

If the spouse signs the mortgage, we add language amending the instrument so that the purpose of the signature is clear. We want to preserve the note integrity so the "co-mort" clause as we like to call it clarifies that the spouse, the co-mortgagor, is not a borrower on the note.

These procedures are used whether or not the non-borrowing spouse is vested in title.

Some lenders - particularly FHA lenders - will not allow these methods. They maintain that the FHA requires that the non-borrowing spouse relinquish all ownership, including marital rights by deed. I don't really like this arrangement however, if the lender makes the requirement a written condition of the mortgage and the borrowers accept the terms, we'll prepare the deed.

I do wish the FHA would reconsider this position. It would make more sense to preserve marital rights and simply permit the mortgage to go on record with priority over the marital rights. I file this wish in the box that says "There's the real world and there's the world of mortgage underwriting."

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