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Why Signing A Quitclaim Deed Could Ruin Your Credit

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Services for Real Estate Pros with Marketing Advisor & Squeeze Mortgage NMLS# 377413
Why Signing A Quitclaim Deed Could Ruin Your Credit

 

During the real estate crash that began in 2007, many desperate homeowners scrambled to find a way out of their financial pickle. In yesterday’s DailyDollar we shared a real life lesson so that you don’t let your ex screw you with a quitclaim deed, no matter what.

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If you sign a quit claim deed, your credit could be tied up for years, especially if you quitclaim your ownership interest of the house or other real property to your spouse or ex-spouse.

Even if you have perfect credit, a quitclaim deed could hurt you and this negative impact may be overlooked in a divorce agreement.

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I Thought I Was Getting Rid of the House?
It’s a common misconception that if “I give her/him the house” you think you are done with the responsibility for the loan.

If your signature is on the mortgage loan, the lender will hold you responsible for the payments whether you have an ownership interest in the property or not.

A quitclaim deed allows you to resign from ownership of the house. However, it doesn’t take you off the mortgage loan.

A property that is worth less than what is owed is a hot potato when it comes to a divorce agreement. It is in your best financial interest to sever your bonds to the mortgage! The only way to do that is to sell the house (try a short sale) or refinance the mortgage into someone else’s name. Do what you must to avoid foreclosure.

Be extremely cautious of divorce agreements that leave you on the loan, especially if the payment is realistically too high to handle.

In a divorce, don’t get stuck with an unsellable property, especially one where you can’t afford the payments. Cut your losses, take your lumps and get started with the new chapter in your life.

The Impact Of Your Mortgage Payments On Your Credit
Even if your ex-spouse makes perfect payments on the mortgage, the debt will still show up on your credit report. The ex’s perfect payments will actually strengthen your credit without you having to pay a dime.

On the other hand, if your ex doesn’t pay on time, it will hurt your credit score, regardless of whether your name is still on the title of the house. Your lender doesn’t care about who bears the responsibility in the divorce agreement. They hold you both accountable.

Quitclaim Deed Ties Up Your Debt Utilization Ratio
Even if you sign a quitclaim deed, the mortgage balance will continue to show up on your credit report. This will hurt what is called your “debt utilization ratio”. This may mean you have too much debt to be qualified for your next mortgage when you want to buy a new home.

A quitclaim deed may sound like a good idea but this could tie up your credit for years. Even if you have excellent credit, and even if your ex made perfect payments, your ability to borrow may be tied up in a knot.

Please consult with a mortgage professional before quitclaiming a deed to your ex-spouse. If you owe more on the house than it is worth, please consult with a short sale Realtor as well as a real estate attorney. Additionally, free assistance is available at 1-800-HOPE-NOW and consumerfinance.gov/mortgagehelp.

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Comments (2)

Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Randy, was not aware of this - and MA is a quit-claim deed state - hope they have considered this before adjusting the credit score.

Jul 15, 2012 03:37 PM
Randy Mitchelson,APR
Marketing Advisor & Squeeze Mortgage - Bonita Springs, FL
First Impressions are made at First Click

The credit bureaus and the formulas used to calculate credit scores are blind to root causes of situations. All they know is thee is a late payment. Doesn't matter if it it's caused by your ex-spouse and you are still named on the debt. Just like when banks slashed people's credit lines no matter how good an on-time paying customer, those folks carrying credit card or home quity line balances were hurt because the denominator in their debt utilization ratio went down overnight thus dropping thier credit score....and they did nothing wrong.

Jul 16, 2012 09:31 PM