Can You Do A Quit Claim Deed With A Mortgage

Can you do a quit claim deed with a mortgage? Yes, you can execute a quit claim deed even if there’s an existing mortgage on the property. However, it’s important to understand that while the deed transfers ownership, the mortgage remains in the original borrower’s name. For instance, if the mortgage is $250,000 with a 4% interest rate, the new owner will still be responsible for the mortgage payments unless the lender formally releases them from the obligation.

What is a Quit Claim Deed and How Does It Work?

A quit claim deed is a legal document used to transfer ownership of real estate from one party to another. Unlike a warranty deed, which guarantees that the title is clear, a quit claim deed offers no such assurances. When you sign a quit claim deed, you’re saying, “I’m transferring my interest in this property, but I can’t guarantee it’s free of liens or other claims.”

This type of deed is often used in situations such as:

• Divorce settlements, where one spouse transfers their interest to the other
• Adding or removing someone’s name from the property title
• Transferring property within family members

In the context of mortgages, quit claim deeds can be a bit tricky since they don’t eliminate the mortgage obligation.

How to Add Someone to a Deed When There’s a Mortgage

When there’s an existing mortgage, transferring ownership through a quit claim deed doesn’t remove the financial responsibility tied to that mortgage. Here’s how it works:

1. Ownership Transfer: The quit claim deed transfers ownership to the new owner.

2. Mortgage Responsibility: The mortgage remains tied to the original borrower unless the lender agrees to a formal assumption or refinance.

3. Risks: If the new owner stops making payments, the original borrower could face foreclosure.

Real-World Example

Let’s consider Sarah, a 35-year-old teacher in Denver. She and her ex-husband owned a house together worth $400,000, with a mortgage balance of $250,000 at a 4% interest rate. After their divorce, Sarah decides to keep the house. They execute a quit claim deed in which her ex-husband transfers his interest to her.

While Sarah is now the sole owner of the house, she’s still responsible for making the mortgage payments. If Sarah fails to pay, the bank can still go after her ex-husband as he’s still on the mortgage.

What Happens When You Add a Name to a House Deed

When a quit claim deed is executed, the mortgage does not automatically change. Here’s a breakdown of what happens next:

1. Mortgage Obligation: The original borrower remains responsible for the mortgage payments. The lender has the right to pursue the original borrower for any missed payments, regardless of the quit claim deed.

2. Lender Notification: It’s advisable to notify the lender about the transfer. Some lenders might have specific policies regarding ownership transfers, and they may require the new owner to qualify for a new mortgage.

3. Refinancing Options: If the new owner wants to take full responsibility for the mortgage, refinancing is usually the best option. This way, they can remove the original borrower from the mortgage.

Example Scenario

Take Mark and Lisa, a couple who purchased a home together for $300,000, with a $200,000 mortgage. After a few years, they decide to split. Lisa wants to keep the house, so Mark signs a quit claim deed. However, Mark remains liable for the mortgage until Lisa refinances the loan in her name. If Lisa fails to make payments, Mark’s credit score could be negatively impacted.

When to Use a Quit Claim Deed With a Mortgage

There are several reasons why someone might choose to use a quit claim deed, particularly when a mortgage is involved:

• Simplicity: Quit claim deeds are relatively simple to prepare and execute compared to other legal documents.

• Avoiding Probate: Transferring property through a quit claim deed can help avoid probate issues.

• Family Transfers: They’re often used in family situations where trust exists, like transferring property to a child.

Risks of Adding Someone to a Deed With a Mortgage

While quit claim deeds can be useful, there are some risks involved, especially with mortgages:

1. Liability for Debt: If the mortgage isn’t refinanced, the original borrower remains liable for the mortgage debt.

2. Title Issues: If there are any liens or other claims against the property, the new owner may inherit those problems.

3. No Legal Recourse: Since a quit claim deed doesn’t guarantee a clear title, the new owner may have limited recourse if issues arise.

Real-World Implications

Imagine Jessica, a 40-year-old real estate agent, who inherits a property from her grandmother. The house has a mortgage of $150,000. Jessica signs a quit claim deed to take over the property, but the mortgage remains in her grandmother’s name. If Jessica can’t keep up with the mortgage payments, the bank could foreclose on the property, impacting her grandmother’s credit.

How to Remove a Name From a Property Deed

If a quit claim deed doesn’t seem right, there are alternatives to consider:

1. Warranty Deed: If you want to ensure a clear title, a warranty deed might be a better option. This assures the new owner that the title is free from claims.

2. Assumption of Mortgage: In some cases, the lender may allow the new owner to assume the mortgage. This involves a formal agreement where the new owner takes over the payments.

3. Refinancing: As mentioned earlier, if the new owner wants to take full responsibility for the mortgage, refinancing is typically the best route.

Frequently Asked Questions

1. Can I sell my house with a quit claim deed?

Yes, you can sell a house with a quit claim deed, but the mortgage will still be the responsibility of the original borrower unless refinanced.

2. Will a quit claim deed affect my credit score?

A quit claim deed itself doesn’t directly affect your credit score. However, if the mortgage payments aren’t made, the original borrower’s credit can be impacted.

3. How long does it take to process a quit claim deed?

Processing a quit claim deed can take a few days to a few weeks, depending on the local county’s recording office and their procedures.

4. Do I need an attorney for a quit claim deed?

While it’s not always required, it’s advisable to consult with an attorney to ensure the deed is drafted correctly and to understand the implications.

5. Can I revoke a quit claim deed?

Revoking a quit claim deed can be complicated and usually requires a legal process. It’s generally advisable to seek legal guidance if you want to reverse a quit claim deed.

Summary: Quit Claim Deed and Mortgage Considerations

So, can you do a quit claim deed with a mortgage? Yes, but be cautious. The original mortgage obligation remains with the original borrower, and that can come with risks. If you’re considering this route, make sure everyone involved understands their responsibilities. Take time to explore alternatives, like refinancing or warranty deeds, to make the best decision for your situation. Always consult with a real estate attorney or a mortgage expert to clarify any doubts and ensure a smooth transfer of ownership.