Can One File a Quitclaim Deed Without Refinancing the Mortgage?

If you're in the midst of a divorce or property dispute, you may hear the term "quitclaim deed" thrown around quite a bit. Someone may even ask you to sign one. You can do so at any time, but doing so releases your ownership stake in the property. If, for example, you and your spouse own a home together, the home becomes your spouse's if you sign a quitclaim deed. The same is true of business partners or friends with whom you share a vacation home. Upon signing the quitclaim deed, you no longer own any portion of the property. Your quitclaim has no impact at all on your mortgage, however, so proceed with caution if you're considering one.

TL;DR (Too Long; Didn't Read)

You can absolutely file a quitclaim deed without refinancing the mortgage, but you generally shouldn't.

Remise and Release

A quitclaim deed is a simple document that states your intent to surrender or give up your ownership of a property. To make it official, all you must do is sign the document and have it notarized. It may seem surprising, but the stroke of a pen and a notary stamp are all you need to surrender your home or property. The law is a fickle mistress, however. Though you can sign away your rights at any time, you can't choose to sign away your responsibilities.

This means that although you can sign away your ownership of the property, you can't just walk away from any liens or your mortgage. Liens represent unpaid debts, and you're responsible for those whether or not you still own the property. The same is true of your mortgage. If you and your spouse own a home together and took out a joint mortgage to buy it, the bank has no intention of letting you off the hook. If you get divorced, you may choose to let your spouse keep the home, or the court may order you to do so. You can use a quitclaim deed to convey ownership to your former spouse, but the bank can still come after you for the mortgage. Your quitclaim deed offers you no protection from the bank at all, which is why quitclaim deeds are often signed as part of a refinance.

The Quitclaim Deed Mortgage

So you're getting a divorce and your spouse is keeping the house. You were going to sign it over to him using a quitclaim deed, but if he stops paying the mortgage, the bank will make you pay for a house you no longer own. What do you do? For many, the answer is a refinance. If your former spouse refinances the mortgage loan in his name alone, you're off the hook. You simply attend closing with them when they refinance and sign the quitclaim deed as the deal is happening. This arrangement gives your spouse the full ownership he needs to refinance without you while protecting you.

If your former spouse is reluctant to refinance, try greasing the wheels. Perhaps you can offer to pay the closing costs on the new loan or help provide part of the down payment on the new mortgage. It may seem unfair to help pay for the refinance, but doing so could cost you much less than having to pay the entire mortgage if he defaults later.

Considering Other Options

While refinancing after a quitclaim deed is the simplest solution, it's not always an option. Your former spouse may have bad credit or may not make enough to afford the home without you. In this case, lenders won't agree to give her a mortgage without a large down payment, a cosigner or both. In that case, signing a quitclaim deed and just handing over the keys to the castle is foolish, so explore other options.

One may be a formalized written agreement between you and your spouse. In this arrangement, you and your spouse both agree that the partner living in the home is responsible for paying the mortgage. If that person becomes unable to do so at any point, outline what the two of you will do. Perhaps you will agree to sell the home and use the proceeds to satisfy the mortgage. Perhaps the spouse living in the home will agree to move out and use a quitclaim to surrender ownership to the remaining spouse, who will then take over the mortgage. As long as your solution is legal, you and your former spouse can agree on how to handle the situation.

If neither spouse can afford the home alone, the two of you can agree to sell it and use the sale proceeds to pay off the mortgage. If the house sells for more than you owe, the two of you may split the profit. If, however, you owe more than the house is worth, you'll have two options. One is to sell anyway and each pay half of the remaining mortgage balance after the sale. There is also another option, but it takes teamwork.

If you and your former spouse still get along, consider using the property as a rental unit. In this arrangement, neither spouse lives in the home. It is instead rented out and the rental income pays down the existing mortgage. If the rental income creates a profit, the spouses can split it or put the extra money toward paying off the mortgage more quickly. You can sell the property after you pay the mortgage or when the real estate market changes in your favor. If the two of you make better business partners than life partners, you could even decide to keep the property and continue renting it once it's paid for.

Forcing the Issue

If your spouse can't refinance but the thought of working together as landlords or coming to any sort of agreement is laughable, you can ask the court for help. Although not available to spouses in all states, you may have the option of asking for a partition by sale. In this case, you explain to the court that you and your spouse are divorcing. Express that you are willing to sign a quitclaim deed and convey ownership of the home, but only if your name is also removed from the mortgage. Explain that your spouse is unable to refinance and that you fear being sent to collections on the mortgage even though you would no longer own the home.

The court may give your spouse time to refinance without you. If she can't, the court has the authority to force the sale of the property to satisfy the mortgage and let you both walk away free and clear. Note that the court can force a sale, but that doesn't mean they will. Make sure you hire an attorney to file the partition action and argue for it on your behalf.

If a partition by sale is available to divorcing couples in your state, it's wise to take this option only as a last resort. The law restricts what can happen with the property and what can't, and legal solutions aren't always fair ones. Divorce is a difficult time, but all involved typically fare better when they can agree on how to divide assets and resolve issues on their own. It's simply not possible for the court to take into account every nuance of your situation, so seek your own solutions when you can.

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