When you buy a house, there are two parts to that homeownership. There’s the deed, which officially states that you own the house, and there’s the mortgage, which relates to the loan you took out on the house. Where things can get confusing is that with a mortgage, the lender has a certain element of control over your deed, since they’ll need to sell your property if you default on your loan. But while you can make changes on your deed without refinancing, the changes you make could have a direct impact on the amount you pay each month.
TL;DR (Too Long; Didn't Read)
Changing something on your deed may not affect your mortgage, but there are rare instances when it could enact the due-on-sale clause.
Changing a House Deed
If you’re trying to change a house deed, chances are you’ve had an instigating event. It could be a divorce, in which case you want to remove someone’s name, or a marriage, where you want to add someone to make things official. Unfortunately, the process of changing parties on a deed is far more complicated than just requesting it. There will be official paperwork involved, and possibly even an attorney, depending on your comfort level with doing things on your own.
To remove someone from a house deed, you’ll need to complete a conveyance deed, such as a quitclaim or warranty deed, which will resolve the legalities with ownership of the home. However, it’s important to note that even though this can change the terms of your mortgage, it does not change who is responsible for paying it. If you divorced, for instance, your ex-spouse will still be on the mortgage, and if you stop paying, the bank will be going to him to collect. For that reason, homeowners generally refinance the home to ensure the appropriate names are on it. But if you’ve added someone to your mortgage, such as a spouse, you don’t necessarily have to change the mortgage, as long as you’re OK with keeping it solely in your name. However, by adding a name to your mortgage, you could invoke the due-on-sale clause in your contract with your lender.
About the Due-on-Sale Clause
If you’re adding a name to a mortgage deed, you’ll need to get your lender’s permission. If you don’t, you’ll risk the lender seeing it as something you’re trying to do in secret. This could lead them to invoke the due-on-sale clause, which states that the balance is due in full if you transfer the property. This clause is designed to protect the lender if you choose to sell the house to someone else without paying your balance. However, if you’re adding or changing names on the deed, they can legally apply it.
But there are notable exceptions to the enforceability of a due-on-sale clause. If one of the parties on the deed dies, for instance, the transfer to that person’s survivor can’t lead to the clause being enforced. The same goes if you pass the property on to your children at death. If you transfer the property to your spouse or children, that change is also protected. These exceptions are noted under The Garn-St. Germain Depository Institutions Regulations Act.
How to Change a Deed
Although what happens with your loan is subject to the mortgage contract, the first step is changing the deed. The requirements for doing this vary from one municipality to another, but generally, you’ll need to get the proper paperwork, complete it and sign it in front of a notary or witness. An attorney can review the paperwork and make sure everything is above board, but if you can’t afford one, the documents are available online, or you can get them from your county clerk’s office.
Once it’s signed, submit your form to the city or county office that handles property matters. Often, this is the county clerk or land registry, but it can vary widely. You may also be asked to provide paperwork showing that the change is a legal one. When you submit the document, ask for a copy, which will come in handy if you choose to refinance or if issues arise in the future.
Subject to Mortgage Contract Restrictions
In some cases, you may want to change the name listed on the mortgage. This is different from adding a name to a mortgage deed, assuming the same person owns the house. Name adjustment requests are most commonly seen with marital situation changes. If you’ve gotten married or divorced, for instance, you may just want your current legal name reflected in the official documentation associated with your house.
Although the process is subject to mortgage contract restrictions, generally a name change involves contacting your lender and providing proof. You’ll find it’s the same process for changing your name on bank accounts. You’ll need legal documentation of the name change, such as a divorce decree or marriage license. The same process will apply to the deed on your house. Although you don’t have to change your name as long as you continue to make your monthly payments, it could save some extra steps when you eventually decide to sell if you go ahead and change it now.
Deed Transfers and Mortgage Loans
Although nothing might immediately happen if you change your deed, there’s still the issue of the mortgage. If you plan on continuing to pay each month, there may be no issue whatsoever. However, if you want the receiving party to take over the payments, there will be some steps involved. If you transfer a house deed to someone else and want to do the same with the mortgage, you’ll need to check your paperwork to see if your loan allows for transfer. This is called an assumable loan, and there are three main types: VA loans, FHA loans and USDA loans. A USDA loan will require lender approval, and FHA loans must have been closed before December 1989. VA loans would need approval if they closed before March 1988. Even if someone else can assume your loan, though, you’ll need to make sure you have a release in writing so you aren’t responsible if the new owner stops paying.
The safest course of action, if you want your home’s new owner to take over payments, is to pay off your mortgage and have them take out a new one in their name. This is the same process you’d go through if you sold the house to a stranger. In doing so, you’ll remove yourself from being responsible for payments subject to mortgage contract if the new occupant defaults.
Transfer a House Deed
If the reason you’re looking to transfer a house deed is to hand it off to a child or parent through a trust, the fact that you have a mortgage in place is an important consideration. To have it passed to your relatives after your death but continue to live in it now, you’ll need to set it up as a revocable living trust, which does not release you from the obligation of paying your monthly mortgage payment, but it puts everything in place.
Adding a name to a mortgage deed isn’t necessary in this case. It will simply be placed in the trust. The only complication you may run into will happen if you eventually want to refinance your mortgage. In that case, your lender may ask you to remove the home from the trust until closing is complete.
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.