Legal Question in Real Estate Law in California

Re: Quitclaim deeds

A quitclaim takes you off of ownership of the property, but does not relieve you of liability for the loan.

Reverse the situation for a minute. If you sold a house to two people, based on the credit of both, would you want one person to decide on his own that he didn't owe you any money anymore?

What you are looking for is called a novation, which is where the lender agrees to look to only one party to pay. This is a decision the lender must make, not you.

Your problem is that now, although you are liable for the loan, you don't have an ownership interest. If the person you gave the quitclaim to told you it would work this way, you may be entitled to get part ownership back.

Re: Quitclaim deeds

The prior answers are correct. Your name remains on the loan. Since you no longer own the collateral, a foreclosure may have little or no direct impact on you (you can't lose what you haven't got), but your credit is still affected.

There is a bright side to all this. Presumably, you got something in return for quitclaiming the property, right? I mean, you didn't just give it away, did you?

Here's what may happen. If there is a default on the loan, the lender will probably opt for a trustee's sale rather than a judicial foreclosure. The property will be sold to satisfy the obligation. If the proceeds are sufficient, no one can come after you. Even if there is a deficiency (i.e. the sale proceeds are insufficient to pay off the loan and related costs), the lender is most likely barred from coming after the borrowers personally under the anti-deficiency statutes. This is true if the loan was a purchase-money loan and not a refi.

All the foregoing assumes your bailing out via quitclaim was not fraudulent (either in intent or in result) as to the lender. If the purpose or effect of the quitclaim is to protect assets from a creditor, the scheme can be un-done in court.

There is also the question of the now-100%-owner's rights against you. You may be jointly and severally liable on the note secured by the deed of trust. Does it read "I promise" or "We promise" at the beginning? When you sold out, did the partner/buyer release you from liability on the loan, either as to principal, interest or both? Has the partner made 100% of the mortgage payments since the quitclaim? Your understanding and/or actual practices may affect your liability to indemnify the partner for any judgment against him, or for payments prior to a default.

Re: Quitclaim deeds

If you sign for a loan, even if you quitclaim the underlying property it does not relieve you of the loan; in fact, transferring the property might accelerate the loan and the entire amount due in full now.

JOEL SELIK

ATTORNEY-RE BROKER

Re: Quitclaim deeds

If you deeded it over to your partner in the property that person will have to go to the mortgage company and qualify for the loan on the property on their own financial merit. If you deeded it over to someone else. Then your old partner and the new person will have to go in a requalify.