A quitclaim deed is a document that transfers legal ownership and interest of a property from one person (the grantor) to another (the grantee). Unlike a warranty deed, a quitclaim deed does not offer assurances that the land in question is free from claims.There is no warranty on the status of the property title – the grantee simply takes legal possession of whatever interest the grantor had in the property at the time of the transfer. Therefore, the deed offers almost no buyer protection. A quitclaim deed may or may not affect your mortgage depending on how the parties use the deed.
Does the Grantor Have a Mortgage?
Family members are the most common people to use quitclaim deeds, especially for transferring property, instead of the sale of property. For this reason, most real properties involved in quitclaim deeds do not have outstanding mortgages – it would be difficult for most grantors to pay off mortgages without proceeds from the sale of the land. If there is no mortgage, there is of course no way for the quitclaim deed to affect the mortgage.
In some cases, the grantor does have a mortgage while filing a quitclaim deed. In the event that the grantor has an outstanding mortgage on the property, he or she remains legally responsible for the mortgage even after transferring ownership through a quitclaim deed. This is because a quitclaim merely transfers ownership – not any debts or claims to the property. The new owner will have the title of the property, but the original grantor will still be liable for the outstanding mortgage.
How Due-on-Sale Clauses Impact Quitclaim Deeds
Some properties have due-on-sale clauses in the mortgage agreements. This provision in the mortgage contract requires the full payment of the mortgage upon the sale or conveyance of the property. If a grantor’s mortgage agreement has a due-on-sale clause, a quitclaim deed can cause problems. The grantor may transfer the property with the assumption that the grantee will pay the mortgage in full or continue making payments according to the agreement.
If the grantee refuses to pay in full, stops making payments, or sells the property to someone else, the original grantor will face potential legal trouble from the mortgage lender. A quitclaim deed does not offer legal protection from these adverse outcomes like other types of deeds do. A due-on-sale clause can create a significant issue with quitclaim deeds if the grantor cannot pay the full amount of the mortgage, or if the grantee takes over the mortgage and can’t pay in full either.
Mortgaging Options After Property Transfer
There is a way for grantees to increase their legal safety despite the lack of protection from a quitclaim deed. The grantee can receive the mortgage lender’s approval to assume the mortgage from the grantor. This way, the grantee’s property ownership is not contingent upon the grantor continuing to make payments. The grantee would then have control of the mortgage and the future of the home. The grantee also has the option of refinancing the property. This enables the grantee to pay off the original loan that purchased the home. The grantor can draw up a legally binding contract to settle and record the terms of a mortgage payment in these situations.
If the grantor wants to give up all interest in the property, including an outstanding mortgage, it’s safer to give the mortgage to the grantee. This takes the grantor’s name off the mortgage and relieves him/her from the legal burden of making payments. Failure to take your name off the mortgage puts you at risk of penalties if the grantee doesn’t make the payments. For example, if you use a quitclaim deed to transfer the title of a home to your ex-spouse and he/she misses a few mortgage payments. If you don’t transfer the mortgage, it’s your credit the missed payments will harm, not your ex’s.
How to Qualify for Mortgage Responsibility
The safest way to handle a mortgage during a quitclaim deed property transfer is for the grantee to assume responsibility for the mortgage or refinance the property. Unfortunately, not everyone will qualify for these actions. If the grantee doesn’t qualify to assume the outstanding mortgage, the grantor can get stuck with liability for the contract. The grantee must prove to the mortgage provider or loan lender that he/she can make the payments. This process typically requires the same type of information necessary to take out the original mortgage:
- Income and tax forms for the last two years
- Profit and loss forms if you’re a business owner
- Recent paycheck stubs
- Complete list of debts and monthly payments
- List of assets, including bank accounts and properties
- Canceled checks for rent or mortgage payments
The lender will look at the grantee’s financial situation and decide whether or not the person qualifies for assumption of the loan or a refinancing of the house. If the lender grants the request, the grantee will then take over full responsibility for the mortgage. The grantor is off the hook, and will no longer carry interest or liability for the property and attached mortgage payments.
Other Types of Deeds for Better Protection
If the lack of protection in a quitclaim deed worries you in terms of mortgage payments, consider filing a different type of deed. Several deeds are available for the transference of property. A general warranty deed offers the best protection for both grantor and grantee. With a warranty deed, the grantee has a legally binding contract that ensures the property does not have any defects, claims, or encumbrances. Purchasing or accepting a property with a warranty deed hands over full ownership interest in rights, including over the mortgage.
Parties that don’t want to be at the mercy of other parties should not file quitclaim deeds. These deeds are most appropriate between family members or trusted friends, where the grantee has reason to believe in the grantor’s real interest in the property.
Otherwise, a quitclaim deed can expose the grantor and grantee to significant risks – especially with a mortgage. Even in cases where commingling of assets or marriage leads to a quitclaim deed, consider mortgage arrangements carefully. In the event of divorce, you could face penalties for failure to pay the mortgage if your ex-spouse is in charge of making payments. Talk to a realtor for more information about quitclaim deeds and mortgages.