Wednesday, July 11, 2007

query: effect of quit claim deed non-borrowing spouse

This always bothers me. I'd much rather have a non-borrowing spouse sign the mortgage to allow the lien rather than deed away their rights to the property. As an alternative, they could also record a subordination of their rights to the mortgage lender. The repeated use, however, by lenders of the quit claim deed in these situations may spell trouble for folks facing estate or divorce issues, etc.

Remember, the non-borrowing spouse is giving away all rights to the property. Do consumers really think this through when they are emotionally charged with the whole prospect of buying a new home.? Sounds like a good time to consult a competent attorney.

BTW- The FHA program is one that our friends at HUD should revisit in this regard. There is some rule in the FHA program that forces lenders to require a quit claim deed rather than allow the non-borrowing spouse to subordinate their rights.


John Povejsil said...

I swear I spend half my working life fending off mistaken understandings of what quit claim deeds do, and do not do. Starting with those who request "quick claim deeds" (which often they literally are, in that they result in quick claims - e.g. deeding a party into title without determining whether the grantee had judgment or tax liens that will attach).

States vary widely as to how spousal rights are effected by quit claim deeds. Minnesota, for example, allows no waiver of marital homestead rights. That is, if property qualifies as a marital homestead, regardless of how title appears, both spousal signatures are required for the mortgage to be valid. In other words, a mortgage on a marital homestead lacking both spouses signature is not a lien.

One thing, however, is not state-specific. A quit claim deed does not legally change somebody's name. Marriage certificates and court orders do legally change a name. QCDs also do not change marital status.

States do vary on the recording requirments involved when there is a name or marital status change, but it is a different matter to say that the use of a QCD effects those changes. It doesn't, and insistence that it does leads to many confusing and unnecessary practices.

Finally, using a QCD to vest or divest a spouse for the purpose of doing a mortgage raises not only technical issues, but ethical issues, that unfortunately, lenders and title agents are poorly equipped to deal with, specifically in the refinance arena. Try as we might, the likelihood that the parties to the deed will really understand all of the ramifications of what is happening is small. QCDs, even those that appear to be being used properly, bother me.

Diane Cipa, The Closing Specialists® said...

Excellent comments, John. Thank you!