SHOULD I QUITCLAIM MY HOUSE FOR A REFINANCE OR EQUITY LINE?

HELOC

It is not uncommon for a bank to require a borrower to be added to the title to the property if they are not already on it. However, transferring someone on or off title should not be taken lightly. Although the process is simple, the implications can be astronomical. How title is held to your property should not be decided by your bank. There are business and estate planning reasons for one or two or more people to own title to property, but there are no valid banking reasons to do so. It is the business and estate planning reasons that should dictate how title to your property is held, not the bank. The bank can still have the security it requires by placing a mortgage lien on the property regardless of whether one person owns the property or ten people own the property. Likewise, the person borrowing the money does not need to own the property to give the bank the security of his income to repay the loan. For example: Mom and Dad own their family home. Dad owns his own business and to protect the house in the event he ever gets sued, he transfers the entire house to Mom. Mom is a stay-at-home Mom and has no income other than what Dad brings home. They want to refinance their home to pay tuition for their college bound High School senior. The bank tells them: “Dad has to be on title because he has the income to support the bank’s decision to lend them the money and Mom has to also sign the note because she is on title.” It is important to understand there are two parts to every mortgage; the first part is the “Promissory Note” which is the promise to pay the money back to the bank and the second part is the actual “Mortgage” which is the document that puts the property up as collateral (security) for the loan so if the Promissory Note is not paid, the bank can foreclose (take) the property. In order to maintain the protection of the house from anyone that may sue Dad, Dad can sign the Promissory Note (because he has the income to pay it back) and Mom can sign the Mortgage (because she owns the property which the bank wants as collateral). Dad doesn’t have to be on title thereby possibly placing the property at risk if Dad gets sued and Mom doesn’t have to be on the note, because she has no income, but the bank still has the whole house as collateral for the loan. How property is titled should be strictly and estate planning decision, not a financing decision.

“When results matter, experience counts”

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