Introduction

When it comes to real estate, you might have heard of the terms “mortgage” and “quit claim deed.” But what happens when you find yourself dealing with both of them? In this article, we’ll break down what happens when you have quit claim deed but still on mortgage in simple, easy-to-understand words. We’ll explore how mortgage quit claim deed work individually and what occurs when you have both so you can make informed decisions about your property.

Mortgage Basics

What Is a Mortgage? A mortgage is a type of loan you get from a bank or a lender to buy a house. This loan covers the cost of the home, and you agree to pay it back over time. Unlike regular loans, mortgages are often paid back over a long period, usually 15 to 30 years.

Down Payment: Before you can get a mortgage, you usually need to make a down payment. This is a portion of the home’s price that you pay upfront. The size of the mortgage down payment can vary, but it’s typically around 20% of the home’s price. If you can’t afford a 20% down payment, there are some mortgage programs that allow smaller down payments, but these might have other costs.

Interest Rates: When you borrow money with a mortgage, the lender charges you interest. Interest is like a fee for borrowing money. It’s a percentage of the loan amount, and it can vary. The interest rate can be fixed, which means it stays the same throughout the loan, or it can be adjustable, meaning it can change over time.

Monthly Payments: To pay back the mortgage, you make monthly payments. These payments cover two main things: the principal and the interest. The principal is the actual loan amount, and the interest is the cost of borrowing the money. Over time, the balance between these two components in your monthly payment shifts, with more going towards the principal.

Quit Claim Deed Explained

What Is a Quit Claim Deed?

A quit claim deed is the legal instrument that transfers one person’s ownership interest in a property to another person without any warranties or guarantees about the property’s title. In simple terms, it says, “I’m giving up any rights or claims I have to this property.” It’s often used in situations like divorce, inheritance, or gifting property between family members.

How Does a Quit Claim Deed Affect Your Mortgage?

When you use a quit claim deed, it only affects the property’s ownership, not the mortgage. The mortgage is a separate contract between you and the lender. The key points to remember are:

• Mortgage Responsibility: Even if you transfer the property’s ownership through a quit claim deed, you remain responsible for the mortgage. The lender’s main concern is getting its money back, and they don’t automatically release you from your loan obligations.
• Loan Assumption: Some lenders might allow the person receiving the property through the quit claim deed to assume the existing mortgage. However, this is typically subject to creditworthiness and the lender’s approval.

Communication with Your Lender:

When you’re dealing with a quit claim deed, it’s crucial to communicate with your lender. Your mortgage contract likely has a “due on sale” clause, which means that if the property’s ownership changes, the lender can call the entire loan due immediately. To avoid this, you should inform your lender about the change in ownership and seek their guidance on how to proceed.

How Does It Work

A quitclaim deed is a legal document used to transfer ownership interest in a property from one person or entity (the grantor) to another (the grantee). Unlike a warranty deed, a quitclaim deed does not offer any warranties or guarantees about the property’s title. Instead, it transfers whatever ownership interest the grantor has at the time of the transfer without making any promises about the property’s history or condition. Here’s how a quitclaim deed typically works:

Preparation of the Quitclaim Deed: The grantor, the person giving up their ownership interest, needs to prepare the quitclaim deed. This often involves filling out a specific form and providing essential information, such as the names and addresses of the mortgage grantor and grantee, a legal description of the property, and the date of the transfer.

Execution of the Quitclaim Deed: The grantor must sign the quitclaim deed paper in the presence of a notary public and other authorized witnesses. Notarization is crucial to ensure the deed’s validity.

Delivery to the Grantee: Once the quitclaim deed is signed and notarized, it is given to the grantee, the person receiving the property. Delivery can take various forms, but it generally involves physically handing over the deed or recording it with the appropriate government office (usually the county recorder’s office) where property records are maintained.

Recording the Deed: Recording the quitclaim deed with the county recorder’s office is essential to make the transfer of ownership official and a matter of public record. This protects the grantee’s claim to the property.

Owning a Property with a Mortgage

Buying a home is a significant step in life, and for most people, it involves getting a mortgage. But what does it mean to own a property with a mortgage? Let’s explore the ins and outs of this important financial commitment:

Becoming a Homeowner: When you decide to buy a house, it’s likely you’ll need a mortgage. A mortgage is a loan designed to help you purchase a home. It’s not just any loan; it’s a loan that’s secured by the property you’re buying.

Down Payment: Before you can get a mortgage, you usually need to make a down payment. This is a portion of the home’s price that you pay upfront. Commonly, down payments are around 20% of the home’s cost, although some programs allow for smaller down payments.

Mortgage Loan: The mortgage loan covers the rest of the house’s price. This amount varies depending on the home’s cost and the down payment you make. The loan amount, also known as the principal, is what you’ll be paying back over time.

Monthly Payments: When you have a mortgage, you’ll make monthly payments. These payments consist of two main parts:

• Principal: This is the actual loan amount you borrowed to buy the house.
• Interest: This is the cost of borrowing the money, and it’s calculated as a percentage of the principal.

At the start, most of your monthly payment goes toward paying interest, but over time, more goes toward reducing the principal.

Risks and Considerations

 Mortgage Responsibility:

• Risks: Even if you’ve transferred the property’s ownership through a quit claim deed, you remain legally responsible for the mortgage. The lender’s primary concern is getting its money back, and they don’t automatically release you from your loan obligations.
• Considerations: Continue making your mortgage payments on time. Failing to do so can lead to late fees and negatively impact your credit. Your responsibility for the mortgage persists unless the lender agrees to release you.

Loan Assumption:

• Risks: Some lenders might allow the person receiving the property through the quit claim deed to assume the existing mortgage. However, this is typically subject to creditworthiness and the lender’s approval.
• Considerations: If the new owner wishes to assume the mortgage, they need to meet the lender’s requirements, including a credit check and other financial checks.

Communication with Your Lender:

• Risks: Mortgage contracts often include a “due on sale” clause, which means that if the property’s ownership changes, the lender can call the entire loan due immediately.
• Considerations: To avoid this risk, communicate with your lender as soon as you execute the quit claim deed. Inform them about the change in ownership and ask for their guidance on how to proceed. This communication can help prevent unexpected issues.

Protect Your Interests When You Have A Quitclaim Deed But Are Still On The Mortgage

Protecting your interests when you have a quitclaim deed but are still on the mortgage is essential to ensure your financial well-being and minimize potential risks. Here are ten ways to safeguard your interests in this unique situation:

Maintain Communication: Stay in regular contact with the person who received the property through the quitclaim deed. Ensure they are making mortgage payments on time and keeping you informed about the property’s financial status.

Review the Quitclaim Deed: Carefully examine the quitclaim deed to understand the terms and conditions of the property transfer. It’s vital to know what you agreed to when you executed the deed.

Communicate with the Lender: Inform your mortgage lender about the property transfer and the existence of the quitclaim deed. Ask if they require any specific actions or documentation from your side.

Review Your Mortgage Contract: Revisit your mortgage contract to understand your obligations and rights, especially concerning changes in property ownership. 

Consult a Real Estate Attorney: Seek legal advice from a real estate attorney who specializes in property transactions. They can provide guidance and help protect your interests.

Explore Mortgage Assumption: If the new owner is willing and financially qualified, inquire with the lender about the possibility of them assuming the existing mortgage. This can potentially release you from the financial obligations.

Conclusion

In conclusion, having a mortgage and a quit claim deed can be a complex situation. While a quit claim deed allows you to transfer property ownership, it doesn’t absolve you of your mortgage responsibilities. You must continue making mortgage payments, and it’s essential to communicate with your lender to avoid any issues. Seek legal advice when necessary to navigate these intricacies. By understanding the relationship between mortgage and quit claim deeds, you can make informed decisions about your property and protect your interests.

Frequently Asked Questions (FAQs)

1. What is a quit claim deed, and how does it work?

• A quit claim deed is the legal document used to transfer property ownership. It’s typically used in situations like divorce, inheritance, or gifting property between family members. The deed transfers ownership rights but doesn’t guarantee the property’s title or release you from the mortgage.

2. Can I transfer property ownership with a quit claim deed and still be on the mortgage?

• Yes, you can transfer property ownership through a quit claim deed while still being responsible for the mortgage. The mortgage and the deed are separate legal matters.

3. What are the risks of being on the mortgage after a quit claim deed?

• The main risk is that you remain legally responsible for the mortgage even if you’re no longer the property owner. If the new owner fails to make mortgage payments, it can negatively affect your credit and financial situation.

4. Can the new owner assume the existing mortgage after a quit claim deed?

• Some lenders may allow the new owner to assume the existing mortgage, but this is subject to the lender’s approval and creditworthiness requirements.

5. Should I communicate with my lender after executing a quit claim deed?

• Yes, it’s crucial to inform your lender about the change in property ownership. Mortgage contracts often include a “due on sale” clause, and communicating with your lender can help prevent unexpected issues.

6. What if the new owner defaults on the mortgage after the quit claim deed?

• If the new owner defaults on the mortgage, you, as the original borrower, may be at risk. It’s important to stay informed about the property’s financial status and be prepared to seek legal advice to protect your interests if necessary.

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