Quitclaiming Your House to Your Ex-Spouse Could Tie Up Your Credit for Years

By
Real Estate Agent with Keller Williams Realty Louisville East (502) 664-7827

Your credit could be tied up for years if you quitclaim your ownership interest of the house to your spouse or ex-spouse. This could hurt you even if you maintain excellent credit. This future impact may be overlooked in a divorce agreement.

Credit Score and Debt Ratios are Two Separate Issues

There are two separate issues at play here;

  1. The impact of your mortgage payments on your credit
  2. The debt load a future lender considers safe for you as a new borrower

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. If the ex doesn’t pay on time, it will hurt your credit score. Your lender doesn’t care about who bears the responsibility in the divorce agreement.

The Debt Load a Future Lender Considers Safe for You as a New Borrower

The mortgage balance will continue to show up on your credit report, which will hurt what is called your “debt ratios”. This may mean you have too much debt to be qualified for your next mortgage when you want to buy a new home.

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.

What is a Quitclaim? Aren’t I Getting Rid of the House?

It's a common misconception that if "I give her/him the house" you are done with the responsibility for the loan.

If you are signed on the loan, the lender will hold you responsible for the payments whether you have an ownership interest or not. "Giving the house" is often referred to as a "quitclaim". In a quitclaim deed, you are resigning from ownership of the house, but it doesn't take you off the loan. It is sometimes erroneously called a quickclaim deed. It is advisable to consult a real estate lawyer to review ownership transfers.

Sever those bonds to the mortgage!

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

If there is more owed on the house than it's worth, you should consider a short sale. In a short sale, the lender agrees to let the house sell for an amount SHORT of the payoff. In an ideal short sale, the lender forgives the deficiency and you never have to pay it back. It varies from case to case. Please call a Realtor who specializes in short sales. You need a realistic assessment of the value of the house in today's current market. I have seen too many cases where the spouse got stuck with an unsellable house even though it appraised for much higher than what it can actually sell for. After months or years of trying to sell the house for "appraised value" the spouse figured out they're stuck and needed a way out to avoid foreclosure.

In the Louisville KY and the surrounding counties, please call Dave Halpern at (502) 664-7827.

 

Posted by

 

 

Dave Halpern, Realtor

The Dave Halpern Real Estate Group

Keller Williams Realty Louisville East

Website David.DavidHalpernRealtor.com

(502) 664-7827

 

 

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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Daniel H. Fisher 06/10/2011 02:02 AM
  2. Barb Van Stensel 06/10/2011 02:24 AM
  3. Gabe Sanders 06/20/2011 12:03 PM
Topic:
Home Selling
Location:
Kentucky Jefferson County Louisville
Groups:
Short Sales Specialists
Short Sale REALTORS®
Divorce and Real Estate
Voice of Reason
Tags:
real estate agent
credit
divorce
loan
quitclaim
mortgage payments
debt ratio
short sale
exspouse
raltor
dh
quickclaim
give the house
spose

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Rainmaker
1,044,286
Barbara S. Duncan
RE/MAX Advantage - Searcy, AR
GRI, e-PRO, Executive Broker, Searcy AR

Very good post.  It makes me think, however, of a blog I wrote awhile back.  I sat through TWO different closes.  The mortgage was only in the wife's name.  The husband did NOT sign the mortgage at all.  BUT the husband's name was on the deed.  I couldn't help wondering what would happen in case of the wife's not paying the mortgage.  Did the hubby own part of it free and clear? 

Jun 10, 2011 02:21 PM #36
Rainmaker
525,239
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Ron #1 - what people don't know will hurt them

Sheila # 2 - it is very common. Too common.

Bliz #3 - Quitclaim deeds were one of those boring things we learned in licensing classes. But then we realized they actually exist in the real world

Barb #4 - many divorce decrees have unfulfillable terms, such as refinancing an underwater loan.

Alex #5 - yup! And complicating it with underwater debt should be avoided. A short sale is a good way of getting rid of the debt.

Jun 10, 2011 03:08 PM #37
Rainmaker
222,058
Jirius Isaac
Isaac Real Estate &TriStar Mortgage - Kenmore, WA
Real Estate & loans in Kenmore, WA

You are so right about all this.  I am working with a couple that both ahve excellent credit & own 3 houses together &  are getting divoced & so I have been discussing these very issues a lot recently.

Jun 10, 2011 05:25 PM #38
Rainmaker
1,004,473
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Barb in #36:  That CAN be the case... depending on whether or not the state is a community property state.

If the wife did not pay the mortgage, it would not affect the husband's credit, or should not.  But, depending on the laws of the state... if the wife bought it while married, and even though she bought it by herself, and only her name on the mortgage, he is also "in title."  In those types of states... "it only takes one to purchase, but to sell it, two are required."

Jun 10, 2011 05:42 PM #39
Rainmaker
525,239
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Robert #6 - Thanks for stopping by

Randy #7 - Part of our real estate coaching is to interact with their divorce attorneys, too

Pamela #8 - Right! Quitclaim deeds could become an illusion if not understood

Bruce #9 - I agree. It's less of a problem in an appreciating market

Adam #10 - LOL! That's why I wrote the post.

 

Jun 11, 2011 12:40 AM #40
Rainer
320,418
Ed Aus, Jr
Taylor Properties - Westminster, MD

A quit claim is an easy way to severe your claim on a property but it leaves all of the little nagging complications in place.

Jun 11, 2011 04:32 AM #41
Rainer
37,556
Kimberly Brandon
Smart Moves Real Estate - Venice, FL
Broker/Owner

Great post - I'm seeing this more and more -

Jun 11, 2011 05:15 AM #42
Rainmaker
525,239
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Cory #11 - Thanks for stopping by

Kent #12 - "Quitclaim" is definitely misunderstood by many end consumers

Ann #13 - Refinancing or selling. I have heard of an attempt by a spouse who had good income to get the ex off the loan because the remaining spouse coulod qualify on their own. I don't know if it was considered a refinance.

Michael #14 - Quite a twist. Boomerang.

Jerry #15 - Good to hear from a loan officer on this issue. Divorce lawyers should consult with real estate lawyers, loan officers and Realtors on these matters.

Karen Anne #16 - It seems that Realtors know this and are called in years after the divorce to fix the problem.

Ray #18 - Agree! I have seen cash out to buy out the other spouse. Then, a year or two later the spouse with the house realizes they're underwater and should never have cashed out.

Jun 11, 2011 06:48 AM #43
Rainer
77,681
Francine Kianoff
Coldwell Banker Residential Brokerage - Los Angeles, CA
Realtor

On the positive side, most lenders will allow the ex who is not responsible for the loan to qualify for another loan if it can be proven that someone else has made the payments on time for at least the last 12 months, even though the debt shows on their credit report.

Jun 11, 2011 08:05 AM #44
Rainmaker
1,528,256
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

Yep, good points for people that don't understand. Get yourself off that mortgage! If your X can't refi then the house has to be sold.

Jun 11, 2011 09:07 AM #45
Rainmaker
1,431,210
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

VEry good post.  This is a complex situation and a person should get good advise before deciding on anything.

Jun 11, 2011 09:52 AM #46
Rainmaker
662,099
Patricia Aulson
BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate - Exeter, NH
Realtor - Portsmouth NH Homes-Hampton NH Homes

Thanks so much for the blog today.  It's very informative as well as helpful.  I've bookmarked for future reference.

 

Patricia Aulson/Seacoast NH & ME

Jun 11, 2011 03:21 PM #47
Rainmaker
334,965
Elisa Uribe Realtor #01427070
Golden Gate Sotheby's International - Oakland, CA
Opening the Doors to California Homes -East Bay

wow, what a great blog and definitely worth mentioning, especially with divorce skyrocketing these days. thanks!

Jun 11, 2011 06:09 PM #48
Rainmaker
2,006,225
Patricia Feager, MBA, CRS, GRI,MRP
DFW FINE PROPERTIES - Southlake, TX
Selling Homes Changing Lives

Hi Dave,

I'm going to subscribe to your blog because it's packed with good information. When stuff like this happens, it's good to have a reliable source of information. I'm also going to bookmark this because you never know....

Thanks Dave.

Patricia

Jun 12, 2011 02:59 AM #49
Rainmaker
645,431
DeeDee Riley
Lyon Real Estate - El Dorado Hills CA - El Dorado Hills, CA
Realtor - El Dorado Hills & the Surrounding Areas

Great point here, Dave.  Thanks for clearing things up in regards to quitclaim deeds.

Jun 12, 2011 07:28 PM #50
Rainer
103,417
Marsha Cash
RE/MAX Advantage - Stockbridge, GA

There have been a couple of blogs recently about divorces and property.  A hot topic?  Good food for thought.  These situations can be tricky so the info is helpful.

Jun 13, 2011 08:28 AM #51
Rainmaker
90,505
Goran Utvic
606 Homes LLC | Chicagoland Brokers Inc, Chicago IL 60656 - Chicago, IL
We Buy & Sell Chicago Houses Fast

Dave - Great post...great explanation of a quit claim deed.

Jun 13, 2011 12:24 PM #52
Rainmaker
5,348,141
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

Your post and the comment provide some very good advice to home owners. 

 Blooming for home buyers!

Jun 14, 2011 11:16 PM #53
Rainmaker
824,637
Sheila Newton Team Anderson & Greenville SC
Berkshire Hathaway HomeServices - C. Dan Joyner - Anderson, SC
Selling the Upstate since 1989

I have always advised my divorcing clients to have one or the other refinance the property into just one name and then have one "sell" the other the home for a dollar or something.... I have never used quit claim in a divorce situation. Seems like it would not be a very good alternative at all! Great info here.. Congrats on the feature

Jun 15, 2011 02:08 PM #54
Rainmaker
1,020,471
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

Seems like so many people forget to make the quit-claim deed dependant on a refinance.  That is just trouble waiting to happen.

Jun 23, 2011 02:44 AM #55
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