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Taking over mortgage won't protect loss

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By Steve Tytler
Published:
Question: I have been reading your past articles on quitclaim deeds. It sounds fascinating and a little confusing.
My scenario is a bit different. I was wondering if you could help explain if a quitclaim deed is right for me.
I have a friend who couldn't afford her house anymore, and I couldn't get financing on a house because of terrible credit, so I told her I would take over her mortgage payments (she moved into an apartment), thus saving her credit and getting me a home I couldn't otherwise get because of my bad credit.
However, what's to stop her from telling me to get out years down the road? What if she dies? Would a quitclaim deed protect my investment?
Answer: Yes, a quitclaim deed would definitely be a good idea in your situation. In fact, you are a taking a huge financial risk by not having a quitclaim deed at this point.
First, let me explain again what a quitclaim deed is. As its name implies, when you grant a quitclaim deed to someone, you are giving up ("quitting") any legal ownership interest that you have in a property and transferring that ownership interest over to the person to whom you are granting the deed.
This is the simplest forum of property transfer. It is typically used only between parties who know each other well and don't need proof that the grantor of the deed actually owns the property.
A common example is a divorce, where the jointly owned home is transferred from the married couple to one spouse.
In a "normal" real estate purchase and sale traction between unrelated parties, a warranty deed is used to transfer the property because that type of deed provides a warranty that the seller actually owns the property being transferred.
Now on to your question: When you took over the mortgage payments on the house owned by your friend, you were doing her an enormous favor because you were making the payments on a loan that she could no longer afford.
However, you are getting nothing in return for taking on this financial obligation. You are absolutely right when you say that she could tell you to get out of the house years down the road, and you would have absolutely nothing to show for all the money you spent.
That's because making the mortgage payments on the house does not give you any kind of legal ownership of that property.
First of all, the mortgage is still in your friend's name. So your monthly payments are doing nothing to improve your credit rating. Second, you are not on title as being a legal owner of the property.
So your friend has the best of all worlds: She owns the house and you are making her payments for her, while you are getting nothing out of the deal other than a place to live.
You can't do anything about getting your name on the mortgage at this time because of your poor credit history, but you can become the legal owner of the house by having your friend sign a quitclaim deed over to you.
I recommend that you do this immediately.
I also suggest having an escrow company or real estate attorney handle the paperwork to make sure the quitclaim deed is properly prepared and recorded to protect your legal interest in the property.
As I have explained previously, standard escrow companies cannot give legal advice, but some attorneys offer escrow services, and some escrow companies have an attorney on staff, so make sure you work with a company that will provide legal assistance as well as preparing and recording the quitclaim documents for you.
Please be aware that transferring title to the property may trigger the due-on-sale clause of the mortgage, and the lender could call the entire loan balance due. However, the reality is that as long you make the mortgage payments on time each month there is a low probability of this happening.
Consult the attorney for questions about the risks of the due-on-sale clause.
Once you have the title to the property in your name, continue to pay all of your bills on time for a few more years. You will be able to clean up your credit to the point where you can refinance the house, and then both the mortgage and the title to the property can be in your name.
Steve Tytler is a licensed real estate broker and owner of Best Mortgage. You can email him at features@heraldnet.com.
Story tags » Real Estate

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