Q I am in the process of refinancing my home. I owned the house before I recently remarried, and I wish to keep the title in my name only. How do I go about this?
A Even though Washington is a community property state, you can keep the house separate because you owned it before the marriage. If you are the husband, for example, you could hold title as “John Smith, a married man, as his separate property.” When you apply for the mortgage, fill out all the forms by yourself. Do not include your spouse’s income or assets, because if you do, the lender will insist that your spouse’s name be added to the title. Your income and credit record alone must be strong enough to qualify for the mortgage.
The mortgage lender and/or title company may raise questions about potential community property interests of your spouse. Therefore, you should be prepared to have your spouse sign a quitclaim deed releasing her interest to you. It may sound confusing, but your spouse does not have to own an interest in your house in order to quitclaim it to you. A quitclaim deed would merely state that your spouse releases whatever claim or interest he or she may have in the house – if any. This is not required by law, but mortgage lenders are a cautious bunch, so you can bet that your lender will probably ask for one.
Finally, you should be aware that your combined married income is considered community funds. Since some of those funds may be used to make the mortgage payments on your house, your spouse may eventually acquire an equitable lien against the home, because that is his or her money as much as it is yours.
Q Last year, I purchased a home as tenants in common with a friend. I paid more than $40,000 down and my friend paid nothing down. My friend is listed as the borrower on the loan, and I’m the co-borrower. We have been splitting the monthly mortgage payments. Now, we are at odds with each other. My friend has moved out and wants to sell the property. The house is worth about what we originally paid for it, so there is no chance of selling it for enough to recover my down payment after selling expenses. I have offered to buy out her equity in exchange for a quitclaim deed. She has rejected my offer, contending that a quitclaim deed will not release her from the mortgage obligation. I think it will.
A: Sorry, but your friend is correct. Such a deed would release your friend’s ownership interest in the house but it would not release her responsibility for the payments.
If you were to take title as the 100-percent owner of the house then fail to make the monthly loan payments, the mortgage lender could come after your friend – even though she no longer owned an interest in the house. That’s a lousy position to be in. She would have no benefits of ownership, yet she would be fully responsibility for the mortgage payments, so I can understand her reluctance to sign a quitclaim deed.
Your situation highlights the risks inherent in two unmarried people buying a house together. You have essentially entered into a real estate partnership, and as I’ve said before in this column, unfortunately most partnerships end in disaster. The partners start out with a common goal but over time their goals often change. Conflict is almost inevitable, and the break-up is rarely amicable.
The smart way to handle this kind of transaction is to draw up a very detailed partnership agreement before you purchase the home. This agreement should anticipate every conceivable problem or disagreement that might come up during your ownership of the property and spell out exactly what you will do in each and every circumstance.
For example, you could agree in advance that if either of you ever wants to sell the house, the other party would have the option to buy out the partner in exchange for a quitclaim deed. The advantage of drawing up such a contract is that you have a chance to calmly and rationally work out problems before tempers flare.
At this point, the best solution for both of you would be to have your friend quitclaim the house to you, then refinance to get her name off the mortgage. Of course, that assumes you have sufficient income to qualify for the mortgage by yourself. Since you purchased the home together listing your friend as the main borrower, I’m guessing that you probably needed her income to qualify for a loan, so that’s probably not a realistic option.
Therefore, you’ll have to convince your friend that if she signs a quitclaim deed to you, you will not miss any mortgage payments and damage her credit rating. Even though you’re not getting a divorce, you might consider drawing up a property settlement agreement in which you assume total liability for all future mortgage payments on the house. That agreement could be recorded at the county courthouse and your friend could use it to help clean up her credit rating if and when there were ever any late payments on the mortgage.
Mail your real estate questions to Steve Tytler, The Herald, P.O. Box 930, Everett, WA 98206. Fax questions to Tytler at 425-339-3435, or e-mail him at economy@heraldnet.com
Steve Tytler is a licensed real estate broker and owner of Best Mortgage, Inc. You can visit the Best Mortage Web site at www.bestmortgage.com.
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