Question: My husband and his dad bought a house together, but because my husband had bad credit his name couldn’t be added to the house at the time. We have always paid half of all the expenses on the house. Someone told me my husband should get a quitclaim. But he said the bank could then demand full payment. Can you please advise us on this?
S., Everett
Answer: Since your husband’s father purchased the home in his name only, his name is the only one on the mortgage and the title to the house.
At this point, your husband technically does not have any legal ownership interest in the house, so it would be a good idea to have his father execute a quitclaim deed adding him to the title of the property.
On the other hand, your husband is not on the mortgage, which means he is not technically liable for any of the mortgage payments if you can’t afford to make them.
His father would be taking a risk by adding your husband to the title of the property because you would then have a legal ownership interest in the house, but without the legal liability for making the mortgage payments.
But I assume that you have no intention of taking advantage of that situation, so it’s probably not a big deal.
The other risk that your father -in-law takes in adding your husband to the title of the property is that it could possibly trigger the due-on-sale clause of the mortgage.
These clauses are designed to protect the mortgage lender’s interest in the property, which is the collateral for the loan. If any portion of the ownership interest in the property is sold or transferred, the clause allows the mortgage lender to call the loan due and require that the entire principal balance be paid in full on 30 days’ notice.
The reasoning behind this clause is that the lender made the original mortgage loan based on the creditworthiness of the original borrower. If they allowed someone with poor credit to take over title of the property (and presumably primary responsibility for the mortgage payments) the loan suddenly becomes a much riskier investment.
But the reality is, as long as the mortgage payments are made on time every month, it is highly unlikely that the lender will enforce the due-on-sale clause.
Now, I may get a note from somebody who thinks I shouldn’t say things like that because a few homeowners do occasionally get caught in the due-on-sale trap, but it doesn’t happen very often.
Frankly, mortgage lenders have much bigger problems to worry about these days with the foreclosure rate hitting historically high levels.
It is not illegal to violate the due-on-sales clause, but you have to be aware that you are taking a very large financial risk and you could be forced to pay off the entire loan if you get caught.
As I said above, if you make the mortgage payments on time every month, you probably won’t have a problem. But only you can decide if that is a risk worth taking.
Mail your real estate questions to Steve Tytler, The Herald, P.O. Box, Everett, WA 98206 or e-mail him at economy @heraldnet.com.
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