Quitclaim Deed Not a Way to Get Mortgage Modification

Ilyce Glink

Q: We live in Nevada and are underwater with our mortgage, like most folks in our area. Our daughter owns a home that is worth at least 50 percent less than what she paid for it.

Can she quitclaim her house to us, and can we then proceed with a loan modification? Are there any repercussions for her after a quitclaim deed is recorded?

A: Your daughter is underwater with her mortgage, but she may not be able to get a loan modification unless her financial circumstances have changed and she can no longer afford her mortgage payments.

While mortgage lenders are able to modify loans simply on the basis of dramatic declines in home values, it's hard enough to find a lender willing to grant a permanent loan modification to borrowers in this situation who are also suffering financial hardship.

But let's say your daughter's financial circumstances have changed. The Home Affordable Mortgage Program (HAMP) is only available for primary residences. So, if your daughter gives the property to you through a quitclaim deed, and you do not live in the property, you would not be able to do a loan modification under HAMP.

And even if you did live in the home, the loan would not be under your name. You would be unable to get a loan modification under the Obama HAMP program unless your daughter signed the documents and she maintained the home as her primary residence.

I should also mention that quitclaiming the deed to you doesn't relieve your daughter of her obligation under the mortgage. The only way to get out from under the mortgage and the debt is to (a) pay it off, (b) do a short sale and get the lender to forgive the principal balance, (c) do a deed in lieu of foreclosure and have the lender take back the property and forgive any amount that may be owed, or (d) foreclosure.

In some states, if a lender forecloses on a property, its only means of recovering money on the mortgage is from the sale of the property. If the lender does not get enough money, it would be out of luck and either couldn't go after the borrower for the deficiency or would have go to court and get a deficiency judgment for the amount that may still be owed.

Recently, however, changes have been made to the HAMP program that might assist your daughter. Lenders are being encouraged to write off a portion of the principal so that the mortgage equals or comes close to the current value of the home. The extra principal will be set aside in a separate account and forgiven over a period of years. The lender would then refinance the loan on the new, lower amount (and hopefully at a lower interest rate).

The federal government is hoping that by writing down the principal of the loan, millions of Americans won't walk away from their homes that are underwater.

As for repercussions, you and your daughter should know that if you do a trial or permanent mortgage modification, short sale or foreclosure, your credit history will be damaged, and your credit score will fall anywhere from 50 to 150 points, and in some cases more.

While the HAMP program was not intended to cause borrowers harm during the application and temporary loan modification process, many lenders have continued to report borrowers that entered the program with on-time payment records as anything but on time.

If you want to try to buy the home from your daughter, I can't imagine that the lender would agree unless you pay off the loan entirely because you're directly related. So you'd be stuck buying it for the full amount that is owed, something you probably don't want to do.

You can always ask if the lender is willing to sell you the house for less than your daughter owes on it -- and it might agree to it -- but the lender may also decline, preferring a short sale with an unrelated party.

I would think carefully about this plan and consult with a real estate attorney, who can provide assistance and help you think through your legal options. Your idea of freeing your daughter from the burden of the home by using a quitclaim deed won't help her out.

Q: My mother, brother and I were joint property owners of a home on 32 acres. The property is mortgage free.

Just before my mother passed away, my brother got her to sign (without my knowledge) a quitclaim deed signing her part of the property to him.

I thought a quitclaim deed just removed owners name off the property, dividing ownership among the remaining owners. But someone told me that I'm wrong.

Does my brother now own two-thirds of the property? Or, do we each own a half?

A: You need to talk with a local real estate attorney to find out if the quitclaim deed is valid and if it transferred your mom's property rights lawfully to your brother alone or to all of the owners equally.

Often, quitclaims deeds are not filled out correctly or recorded properly. Let's hope that's the case here.

If the quitclaim deed was filed legitimately, your brother could own some of the property or even all of the property. You may be able to contest your mom's transfer to him if she was coerced into signing the quitclaim deed, especially if you can prove your mother was ill.

What your brother did may not have been right. But first you have to determine what he did and how it affects you. You should get a copy of the quitclaim deed. In many places, you can go to the local municipal office (often called the "recorder of deeds") in which property documents are recorded and request a copy of the document.

Once you see the document, you might be able to tell what your brother did. If the deed says that your mom transferred her interest to him, he might claim ownership of the entire property.

If the deed says that she conveyed a one-third interest to him, he might claim ownership of one-third of the property as a result of the deed and might have a claim to more as a result of any will your mom had or under state law as a result of your mom's death.

So hire the best attorney you can. You might need one.

Q: My mother passed away a couple years ago. Thirteen years prior to her death, she gave her house to my husband and me. In return, we paid the taxes and insurance on the house on a yearly basis and paid some of my mother's other expenses, including her utilities, prescription drugs, and other expenses off and on through the years when money got tight for her.

To make a long story short, I have other siblings and didn't feel right just taking the house after she passed away. I told my mother that we would keep track of the expenses we paid and deduct it from the sale of the house after she died.

She said we didn't have to do that, but I told her how we felt about just taking the house. Anyway, my husband and I decided to keep the house. So we had the house appraised and deducted our expenses for the 15 years from that appraised amount and then divided the remaining amount by 4 (the number of surviving children) and sent a check to each sibling for that amount.

I have one sibling who is asking for more money, saying we did not take into account the assistance they provided to my parents while living at home. The assistance was in the form of time and labor while my sibling lived there as a teenager and young adult.

This sibling has not cashed the check we sent nearly two months ago. My husband and I plan to remodel the house and rent it out. Are there any legal issues we should be concerned with?

A: If the house is in your name and your mother's estate has been closed, there might not be an opportunity for your sibling to contest the issue. But you might need to consult with an attorney on your issues. (That said, anyone can sue anyone for any reason.)

Still, it seems that you have tried to be fair. However, once you decided that you would take money (or in this case, the value of the property) in exchange for providing financial assistance to your mother, you might have opened up the door for your siblings to make the same offer.

But that's in the past. The one question that's sort of interesting is if you factored in time and labor into your computations or if you only factored in cash out-of-pocket. If your sibling stayed home to care for your mother, that might be worth something. If all we're talking about is keeping a bedroom clean and washing some clothes, not so much.

I'm fairly certain that you and your other siblings helped out your parents over the years by changing light bulbs, carrying out the trash, and perhaps mowing the yard. That's what families do for each other. Did your parents charge your wayward sibling rent while that sibling lived in the house? Probably not.

You should tell your wayward sibling that there is no more money coming, and if she doesn't cash the check before it expires in 90 days then you're not going to issue another one. You can add that you feel your offer is fair and didn't have to be made and that he or she should accept it.

But be prepared for your relationship to take a turn for the worse. Your sibling believes he or she is entitled to more, and once you put money into a relationship it can easily sour.

Please talk to a real estate attorney for more details.

NEWS & CURRENT EVENTS ...

Real Estate - Quitclaim Deed Not a Way to Get Mortgage Modification