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You Can Quitclaim Title But Not The Loan
By marionduffy | November 6, 2009
Common divorce scenarios:
- A couple is going through a divorce. One spouse wants to keep the house and agrees to make the payments. The other spouse wants to rid himself or herself of the house all together.
or
- Due to the recent decline in the market, the house has lost value and there is little or no equity. Even worse, the house may be worth less than the loan balance. One spouse wants to sell the house even if they have to do a short sale. The other wants to keep it until the market turns around.
So the “out spouse” says, “OK, if you want to keep the house, I will quitclaim title and then it will be all your responsibility. I will not have to deal with it any longer.
Seems like a simple solution, but there is a major problem with it if both husband and wife are on title and both are on the loan. While you may be able to quitclaim title (take your name off the Grant Deed), you can not arbitrarily take your name off the loan (Deed of Trust). Anyone on the loan is individually 100% responsible for the loan. If you quitclaim title but remain on the loan, you are then responsible for a loan on a property in which you no longer have any interest. Not a good thing.
Even if it is agreed that your spouse will make the payments, you are at risk. If for some reason your ex is late or behind on the payments, your credit score will suffer. In addition, the loan will be included in your debt to income ratio which could impact your ability to purchase another home in the future.
Laurel Starks does an excellent job of explaining this issue in her article Divorce & Your House: Leaving your ex-spouse in control of the house….and what else?
I think the main point here is the importance of making informed decisions during the divorce process so you can move on with peace of mind after it is settled.
Topics: Selling a house, Distressed Properties, Divorce |