Typically, when property is purchased with a mortgage loan, the borrowers are automatically listed on the deed as owners. However, this isn't always the case. A number of circumstances such as divorce or being a co-signer would create a situation where your name is on the mortgage but not on the deed. Mortgage holders and deed holders have two separate sets of legal obligations and responsibilities.
The property in question acts as collateral to secure a mortgage loan. When you're approved for a mortgage loan, the lender requires you to sign a number of documents. Perhaps the two most important are the promissory note and the security instrument. The note provides evidence of debt. The security instrument -- called a mortgage or a deed of trust depending on what state you live in -- explains the terms and conditions of the loan. It details the original balance, interest rates, repayment term, penalties of non-payment and so forth. It also states the full names of the borrowers. By signing the security instrument, you agree to the terms within.
Once signed, the security instrument is filed with the county clerk/recorder and becomes a part of public record. The borrowers are now responsible for the monthly repayment as requested by the lender. In addition to the loan repayment, you might also need to pay escrow fees and private mortgage insurance. Escrow fees cover property taxes and private mortgage insurance. Whether or not you are required to pay this is up to the lender. Typically, borrowers who put less than 20 percent down have to pay these additional fees.
In situations where your name is on the mortgage and not the deed, you may not even live at the property. This might occur after a divorce, for example, before the loan is refinanced in only the other person's name. Even though the other mortgage holder might pay the bill each month, you are still legally obligated to repay the debt. If the other person defaults on the repayments, the lender has the right to initiate the foreclosure process.
If your name is on a mortgage loan, your credit will be affected. The loan will appear in future credit reports. Your credit score rises or falls based on making payments on time or making late payments. Defaulting on a mortgage loan causes serious damage to your credit score, even if your name is not on the deed. Foreclosure is worse yet: When your name is on the deed, you're obligated to pay property taxes to the county, municipality or city. Additionally, you may be responsible for adhering to ordinances (for lawn maintenance, for instance, or shoveling snow from sidewalks).
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- What Does Subject to Existing Deed of Trust Mean?