How Will a Quitclaim or Assumption Affect My Mortgage?
The short answer to the question of how a quitclaim or assumption affects your mortgage is that neither one affects the mortgage.
There is so much misinformation on the internet concerning this topic that I felt compelled to clear the air.
I am not a real estate lawyer or a real estate agent. I am a person that has owned several homes over my lifetime. My family owned several Century 21 offices, so I was able to go to my family to make real estate inquiries when I needed help.
I have gone the quitclaim route, and I have also entertained the idea of an assumption. Either one can be confusing, especially due to conflicting information found on the internet!
Now, after utilizing both the quitclaim and an assumption, I am very well versed in both. What you need to do to understand what each one means to you and your mortgage is read through the following paragraphs and you'll be ahead of the game.
Let's first look at the quitclaim. To understand how a quitclaim works, you need to separate the two in your mind, the mortgage from the deed. Yes, they appear to be one and the same when you're signing all of those documents with the notary, but they are not.
The mortgage is the payment agreement you have with a lender for the amount owed on your home, how much you are expected to pay each month, the duration of the loan, and other various agreements you make with the lender about the loan.
The deed is the piece of paper that is filed with your county that says you own that specific piece of property.
The property may be looked at as collateral for the mortgage you take out, but it is not the same document. They are two separate entities; what you do to one does not affect the other.
Let's look at an example. Let's say you want to purchase a house, but your income is just a hair away from getting you approved. To bridge that gap in your income, you ask your brother to co-sign on the loan. When the documents are all drawn up, your name is listed on the mortgage papers, along with your brother's name. At the mortgage signing, all the documents are signed at the same time. It is assumed that you want your brother's name on the deed as well as the mortgage, so they include that paper in the stack of documents to be signed.
A year down the road, you realize your brother has problems beyond your control, and you are fearful he is going to sell his portion of your house out from under you, which he can do as long as he is on the deed. What you do is download and fill out a quitclaim. Your brother signs it, you sign it, and submit it to the county recorder. Upon submitting the quitclaim, your brother's name is removed from the deed. He no longer has power over your property/home.
His name is NOT removed from the mortgage loan. The quitclaim is a document between you and the county recorder. Your brother no longer has any claim on your home that the deed refers to, but he is still completely responsible for the mortgage you took out with him. The quitclaim in no way affects the mortgage.
You do not have to refinance when you file a quitclaim.
To remove his name from the mortgage, you must refinance the loan.
Quitclaim = Name removed from the deed.
Misinformation About Quitclaims
There is misinformation about quitclaims that I see on the internet often. This misinformation says that filing a quitclaim will remove the person's name from the mortgage loan as well as the deed. It does not remove anything from the mortgage at all.
This is a little trickier than the quitclaim. An assumption is invoked when one person doesn't want/or can't be financially responsible for an item anymore, so they sign it over to someone else. The person they sign the item over to takes over and makes the regular monthly payments. Let's look at an example of the scenario for an assumption.
We'll use you and your brother in this example as we did above.
Let's say you bought a house when things were going well for you. You had a job, you were making plenty of money, and you bought a house. Some years down the road, you lose your job for whatever reason, and you're way short on money. You want to get out from under your mortgage payment, which you can't seem to make anymore.
Here's where your brother steps in. He has a nice job and can make the payments. You and your brother download and sign an assumption. You can also pick up an assumption form from your lender (often but not always). The assumption is submitted to the lender. The lender has the right to deny an assumption if it's not in your original contract with them to allow an assumption. Some lenders will take it under consideration and decide whether or not to allow the assumption.
It's your lucky day! Your lender approves the assumption! Your brother starts making the payments on your mortgage.
Here's where an assumption can get ugly. An assumption does NOT absolve you of the ultimate responsibility for that mortgage. In the eyes of your lender, you are still responsible for the mortgage.
So, if your brother decides he's had enough of paying for the mortgage he has assumed from you and walks away . . . you are responsible for making that payment and any payments he may have missed! Your brother can walk away at any time. He doesn't have to tell you he's done. He doesn't have to tell the lender. He doesn't have to do anything.
It is ultimately your responsibility because it is your mortgage. It is your name on that mortgage. Even if you don't live on the property, it is still your responsibility. An assumption does not, in any way, take your name off of the mortgage or absolve you of the responsibility to make that mortgage payment each month.
Assumptions have been done on vehicles as well. Someone offers to make the payments that you can no longer afford to make. They take the vehicle and start making the payments.
Unfortunately, with an assumption, if they are involved in a car accident that totals the car, they may very well stop making payments on the car because it is wrecked. YOU are still responsible for making that auto payment.
Assumption = An agreement that someone else will make payments on your behalf on an item.
Misinformation About Assumption
The misinformation about an assumption is that once an assumption is invoked, the other person is responsible for the loan. No, they are not. You are responsible for the loan.
Even if they take possession of the home/vehicle/item, you are still responsible for paying the loan you took out for that item.
If it comes right down to it, of the lender taking possession of collateral that was put up for the loan, they will collect that collateral from you.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.