Loan Liability

HELP! I gave up Ownership of the House,
but I’m still liable for the Loan

Ownership in a house is separate from liability on a mortgage.  When you bought the house using a loan, you sign two separate legal documents.  The Deed of Trust and the Promissory Note. The deed changed the ownership into your name(s) and it was recorded with the county. The note is what says you promise to make monthly payments to the bank or mortgage company until that loan is paid off.  Many people give up ownership of a property in a divorce settlement but neglect to ensure that the mortgage is paid off to remove you from liability. Having the mortgage showing on your credit report can make it difficult to buy another house, and if the person who has ownership doesn’t make the payments as agreed, your credit with be damaged.

No law forbids adding someone to your mortgaged home’s deed or in signing your home over to others through one. Mortgage lenders understand deeds, though, and use loan due-on-sale clauses to prevent unauthorized property sales or transfers. A due-on-sale clauses allow lenders to demand payment immediately, making them due and payable upon sale or transfer of mortgaged properties. By “deeding” your house to someone else, you’ve effectively transferred its ownership, and if your lender finds out, the lender may invoke its loan’s due-on-sale clause.

Sometimes, mortgage loans are assumable.

Can your mortgage company or read the note for clarification. The liability potential in giving up ownership in a property without having the mortgage paid off is gigantic.  I have heard of examples where the retaining spouse has 6 months to refinance the departing spouse off title, but since the liability remains for the departing spouse, I would keep a close eye on the mortgage payment. Many people assume incorrectly that they will have no problem qualifying for a mortgage and then come to find out they don’t qualify. A conversation with a mortgage loan officer, and better yet, a complete loan approval would be a more cautious way to go.

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