Quitclaim deed could leave divorcees on the hook for mortgage payments
Q. My wife and I are getting divorced. She is a physician, makes a lot of money and would like to keep our house. She promises to make all of the future mortgage payments if I agree to sign a quitclaim deed that would give my halfinterest in the home to her.
This seems like a reasonable plan to me. What do you think?
A. I don’t know how much you trust your soon-to-be ex or how contentious your divorce may become. For legal purposes, though, the lender on the home that you and your spouse currently share can hold you personally liable for the entire balance of the mortgage if it goes unpaid.
You and your spouse both co-signed for the loan, which means that you must pay the entire bill if she cannot or will not pay it later.
Signing a quitclaim deed is not some sort of cure-all. It would simply mean that you give up all your legal interest in the property but are still liable for its future payments.
In a worst-case scenario, the quitclaim would cede your half-interest in the home to her, allow her to stop making the monthly payments, then permit the lender to insist that you continue making regular installments on a house that you no longer own.
If the bank must eventually foreclose, it would leave a scar on your credit record that would last for several years.
Your letter states that your wife is a doctor and “makes a lot of money,” so she should try to refinance the current mortgage in her name only. Doing so would sever your own financial ties to both the home and the bank.
Of course, the simplest solution would be to sell. The lender would be paid from the sale proceeds, you wouldn’t have to worry about future loan payments, and any profit that’s left could be split however your wife and you agree.
REAL ESTATE TRIVIA
Most lawyers say that the four largest sources of friction among divorcing couples are custody of minor children, child-support payments, alimony and the disposition of a house and related items.
Q. What is a “zanja”?
A. It’s a Spanish term for a simple irrigation ditch.
The Zanja Madre, or “Mother Trench,” is the original aqueduct that brought water in the 1700s to what the Spanish called El Pueblo de la Reyna de Los Angeles. That translates into “The Town of the Queen of Angels,” but most of us just call it “L.A.”
Q. I have been notified by my company’s human resources department that I will have to transfer to another state in three weeks if I want to keep my job. That is certainly not enough time to fix up my current home to put it up for sale, much less find a buyer and close a deal.
On top of all this, I have a monthly mortgage to pay. Would it be a good idea to rent the place out to cover my mortgage until I can get the house “looking nice” and ready to sell?
A. I can certainly understand your concern about paying the mortgage on your current home while you’re living somewhere else, but don’t make the decision to rent the place to tenants until you weigh all the pros and cons.
On the upside, the rental income that the property would generate could indeed go a long way toward covering the mortgage payments or might even provide a small profit.
That’s a particularly important point to consider if sales in the area are slow and it could take several months to find a buyer.
Having a tenant in the property could also reduce the chance that the home would be vandalized or even become the target of squatters, a fairly common problem that occurs when a house stands vacant for an extended period of time.
You could even offer a lease-option contract, which would allow the tenant to initially rent the home and choose to buy it at a prespecified price at a later date — a move that would also allow you to avoid the hassle of marketing the home to the public and perhaps even the cost of hiring a real estate agent.
Now the drawbacks: As I’ve written before, it’s hard to be a long-distance landlord. You won’t be around to check the property often or to make minor repairs, but hiring a property-management company to do such chores for you would likely be an expensive proposition.
Of course, there’s no guarantee that even the most carefully chosen renter won’t later become a troublesome tenant who decides to trash the home or refuses to pay the rent. And marketing a property that is occupied by tenants can be difficult, especially if they don’t keep the place clean and in good repair or won’t cooperate with agents who want to tour the home with prospective buyers.
If sales in your local market are strong and you have enough savings to cover at least two or three months of mortgage payments, I’d lean toward hiring a contractor now to make any needed repairs and cosmetic improvements right away; then put the vacant home up for sale with the help of a good real estate agent.
But if sales are slow or you don’t have much cash, you may have no choice but to find a tenant and rent the property out until you eventually find a buyer.
Send questions to David Myers, P.O. Box 4405, Culver City, CA 90231, and we’ll try to respond in a future column.