Q: My husband wants to put my name on the deed to his house. Because he obtained the mortgage a long time before our marriage, we have been told by the mortgage company that the only way my name can be added is by refinancing. Is there any other way to add my name to the title? We are prepared to pay off the mortgage if — and only if — I can be on the title, too.
My husband is planning to retire sometime next year. He has health problems and his pension will be significantly lower than his current salary. I am already retired. Does it make sense to pay off the mortgage?
A: Your lender is wrong. Although as a courtesy you may want to tell them that you intend to be added to title, you really don’t have to do this. It should be easy to have your name added to the title. All you have to do is have your husband sign a deed conveying the property from himself (as party of the first part) to you and himself (as party of the second part).
You should discuss this with a lawyer because in some jurisdictions you will also need a "spousal affidavit" whereby you each certify that you are married to the other. Because you are married, you should not have to pay any recordation or transfer tax, just a nominal filing fee to have the deed recorded.
You also want to make sure that you understand the different ways that title can be held. Discuss this with the lawyer who will be assisting you because there are significant legal and financial repercussions depending on how title is held.
I suspect that the mortgage company based its requirement that you refinance on two grounds. I’ll address both of them:
1. The original lender’s security would be affected: I don’t consider this reasonable grounds for the requirement, because the original lender is fully secured, whether or not you are put on the title.
When your husband bought the house, the deed to the property was recorded among the land records, and then the deed of trust (the mortgage document) was recorded. If the deed adding your name to the property is recorded, it will be a lower priority than the deed of trust. So, should your husband default on the mortgage payments, the lender — who is in first place on the land records — can foreclose on the property. The lender would have to provide you (and anyone else in the chain of title) notice of the pending foreclosure action. But the only ways that you could stop the sale would be to pay off the loan or file for bankruptcy court protection.
2. This change would trigger the "due-on-sale" clause: I don’t consider this reasonable, either, because in your situation this clause won’t come into play.
Most mortgage documents contain a due-on-sale clause. This means that should the property owner transfer all or part of the property to another party, the lender reserves the right to call in the loan.
In the 1980s, when interest rates spiked up to 18 percent, many buyers were unable to qualify for mortgage loans. So home sellers who had older, low-interest loans worked out arrangements whereby the home buyer would take title to the property and pay the seller the monthly mortgage payments that the seller owed to his lender. The seller would then make the payments.
It was a win-win situation for buyer and seller. The buyer would be able to take title and assume a low-rate mortgage, while the seller would be able to unload the house. And as long as the lender was getting the monthly payment, it would not be concerned.
Nonetheless, lenders were concerned. First, they did not know the financial situation of the buyers, and were worried that there might be defaults.
Second, the lenders were losing money. Instead of making loans at 14 to 18 percent, they were receiving monthly payments on older 6 or 7 percent loans.
So the due-on-sale clause became standard. Typically, it reads: "If all or any part of the property or an interest therein is sold, transferred (transfer to include but be not limited to any lease containing a purchase option, lease for more than three years, land installment contract or contract for Deed) or further encumbered by borrowers without lender’s prior written consent, lender may at lender’s option declare all the sums secured by this Deed of Trust immediately due and payable."
Such clauses were the subject of numerous lawsuits, but courts generally sided with the lenders. For a while, confusion remained about when the clause could be enforced.
Many lenders maintained that they had to enforce the clause if, for example, a couple transferred their property for estate planning purposes to a revocable (living) trust, or a husband gave the house to his wife pursuant to a divorce.
In 1982, Congress enacted a law (the Federal Depository Regulations Institutions Act, commonly referred to as the Garn-St. Germain Act) that included language prohibiting lenders with loans on residential real property containing less than five dwelling units from exercising the due-on-sale clause in a number of circumstances:
- When the homeowner takes out a second deed of trust.
- When the property is transferred by operation of law on the death of a joint tenant or tenant by the entirety.
- When a homeowner leases the property for less than three years and the lease did not contain an option to purchase.
- When there is a transfer to a relative resulting from the death of a borrower.
- When there is a transfer from one spouse to another because of a divorce decree or a legal separation agreement.
- When there is a transfer into an inter vivos (living) trust in which the borrower is and remains a beneficiary.
- When there is a transfer where the spouse or children of the borrower become an owner of the property.
This last provision of the law specifically applies to your situation. Your lender can’t exercise the due-on-sale clause just because your husband adds your name. (This law covers almost all loans; there are some limited circumstances, such as loans from a private party, that might not be covered.)
It makes sense legally and financially for you to go on the title with your husband. You should make the arrangements as soon as possible.
Does it make sense to pay off the mortgage? That’s a personal decision that only you and your husband can make, after you talk with your financial advisers.
My personal opinion: Keep the loan and put your money in a safe, insured investment. You don’t want to be house-rich and cash-poor. Your income will start to decline, so why not have cash in reserve should you need it?
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to firstname.lastname@example.org.
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