Home Loan Advice

One option that people are considering in these recessionary times is to use a quit claim deed to pass ownership of a property. As you may already know, a deed to a particular piece of property is a legal document that establishes the ownership of that property. There are different types of deeds but what we’ll be looking at in this article is the quit claim deed and how it affects a home loan on the property.

Quit claim deeds are a type of deed which is used in the transfer or sale of property when the grantor, the person who owns an interest in the property, is essentially allowing the transfer of that property to another person or legal entity. The grantors do not actually own the property but rather simply have legal and financial responsibility for it. Grantors therefore have the legal right to sell the property, however, there is a catch.

A quit claim deed offers little protection for the buyer down the road. Although the property will be transferred to the grantee from the grantor, the quit claim deed does not legally protect the grantee from future claims to the property, including any mortgage or home equity loan on the property. Since the grantor does not legally own the property this leaves a door open for potential problems regarding the property in the future.

Quit claim deeds are typically used in situations that call for a relative level of simplicity as  compared to many of the other forms of property transfers or sales. One common use of  the quit claim deed is to clear up a title to a piece of property. Another common use of a quit claim deed are for those who want to use a simple way to give up their interest in a certain piece of property.

When quit claim deeds are used in the sale of a property this can result in a significant level of risk to the buyer of the property. However, quit claim deeds do still have other uses which are very beneficial in some types of transactions. For example, in the case where there are multiple people who have a valid claim to a home, such as when a relative passes away, a quit claim deed is an effective way of one of these people to legally transfer their interests in the home to another person. A divorce can create a similar situation, making the quit claim deed very useful.

It is important to note that a quitclaim deed cannot be used to relieve you of obligations related to a mortgage loan or a home equity loan. Real estate loans include both a promissory note, stating your promise to repay the loan in the way stated in the loan documents, as well as a security interest, which is a deed to the property securing the loan which gives the mortgage or equity loan holder the right to foreclose if the conditions of the loan are not met as promised. Another complication that can arise when quit claim deed and a mortgage loan meet is that most home loans have specific clauses that deal with a transfer of ownership. It isn’t usual for loans with these clauses to have serious restrictions on the transfer of property. These conditions may cause you serious financial repercussions if not followed to the letter of the home loan contract.

In general, if you want to do a quit claim deed on a property that has a mortgage or equity home loan securing it you will want to go through the steps of refinancing these loans in the new owner’s name so that all legal obligations for both the property and the home loan are no longer in your name and thus no longer your responsibility.

In the case of a divorce, sometimes a mortgage company will be willing to relieve you of the obligation for the home loan, sometimes at a price for processing fees plus the loan typically must be current. Sometimes they require that the home loan be refinanced by the party who received the home in the divorce settlement. Do not assume that because you were not awarded the home in the divorce that your obligation ends there. Make sure all of the details of the loan are properly attended to so that you no longer have a financial obligation for the home loans against the property.

It also also important in the case of a quit claim deed for you to consult with a tax adviser to insure that you will not be liable for any income or gift taxes from the transfer of the property. You do not want the IRS or state tax agencies coming back to you a year or two later demanding payment of taxes unexpectedly.  This applies for by grantors and grantees of the quit claim deed.

It is important to be smart about quit claim deeds when you use them and to make sure that you have completely taken care of any obligations related to the home loans and taxes during this process.

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