Saturday, June 30, 2007

query: what does a non-borrowing spouse sign at closing

There are variables based on state laws and lender peculiarities. In PA, in a purchase transaction, you would not be required to sign anything unless the lender does not understand PA state law.

That changes if you intend to take an ownership interest in the property, whether you are a spouse or not. In cases in which a lender agrees to a non-borrowing co-owner, in PA, that person will be expected to sign the mortgage to create a valid lien.

So, if your name goes on the deed, expect to sign a mortgage at minimum. Most lenders will also have you sign the TIL disclosure (truth in lending).

If the transaction is a refinance and you are a non-borrowing spouse, expect to sign the mortgage and the right to cancel form.

Signing a mortgage is not the same as signing the note. You are not borrowing the money. You are simply allowing a lien on property in which you have an interest.

In PA spouses have potential marital rights. Lenders will want a lien position that is superior to those rights.

If you are a title agent, make sure you add language to the mortgage which clarifies the purpose of the signature of the non-borrowing party. I do this on the description rider.


eeh32 said...

If the purpose of the non-borrowing party's signature IS NOT included or explained on the mortgage document how can a lender foreclose on his interest if he did not also sign the note ? Or is the non-borrowing party's signature on the mortgage alone (without explanation) sufficient to trigger a foreclosure against him?

Diane Cipa, The Closing Specialists® said...

First, let me remind everyone that I am an experienced PA title agent and not an attorney. My goal here is to help folks understand title issues but not give legal advice. If you are facing foreclosure and want to fight it based on the language in the mortgage document, you should seek legal counsel.

OK, that said, the purpose of having the non-borrowing co-owner sign the mortgage is to validate the lien - to allow it to take priority over the interests of the co-owner. The signature is notarized on the instrument and even if no language or explanation is provided, the signature itself provides evidence that the party was aware of the lien. You'd really have to wonder why someone would sign a legal document if not to approve it, right? So, in my opinion, a signature alone provides a mortgage lender and title insurer a pretty strong position if the matter is in doubt.

BUT, in the world of mortgage lending and title insurance, we are supposed to eliminate risk. We are supposed to create documents that leave no question open and so adding language that clarifies the role of a co-mortgagor who is not a co-borrower eliminates confusion especially when much of the language in the mortgage document just doesn't apply to the non-borrowing co-owner.

Thank you for raising an interesting point. I can tell from our search engine queries that many people are following this issue.

Alexander said...

What about in the instance when the borrower is married but the house he is refinancing is in his name only. Does the individual's spouse have to come to the closing?

Diane Cipa said...

It depends entirely on the laws of the state. In PA the title insurer would want the spouse to sign the mortgage to validate the lien.

Diane Cipa said...

UPDATE: At the time of this post we were writing for an underwriter who felt that the purchase money mortgage always trumped marital rights in a purchase. Our current underwriter takes the position that a court might decide otherwise if the parties are in the process of divorce or separation at the time of the purchase and the down payment is large. The underwriter suggests that the title agent take careful consideration of the facts in a purchase and in some instances a signature of the non-purchasing spouse may be required if the title agent is concerned that marital property is being used for a down payment. So, in these cases a spousal signature requirement would be at the discretion of the title agent.