If a house is in pre foreclosure with two names on the deed and mortgage, can one quit claim and be free from the house and loan?

Asked by M L, Los Angeles, CA Sat Mar 12, 2011

My friend went into a house with his cousin 11 years ago. He has never lived in the house but was the primary person to get the loan since she was unable to get it on her own. Recently the cousin has not been able to make the payments and the house is now in pre foreclosure. She is attempting a loan modification but he wants his name off of everything.

My friend wants to know if he quit claims the home is he still responsible for the loan (her name is on the loan as well) and if so, is there anyway he can turn the house over to her (since she wants to keep it) and have no further responsibilities towards it. The house is upside down so refinancing is not an option. He is trying to prevent his credit from plummeting further from her inability of keeping up the payments.

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HomesbyKaren’s answer
HomesbyKaren, , Beverly Hills, CA
Mon Jun 6, 2011
Quickest way to keep his credit.... bring the loan current. If the second loan is not an equity line he may have a chance at turning things around for the better. This requires a skilled negotiator to purchase the 2nd note and cure the default .
0 votes
John Arendsen, Agent, Leucadia, CA
Mon Mar 14, 2011
Nope. It's considered discretionary collaboration of a debt. Very illegal.
0 votes
Elizabeth Ma…, Agent, Sherman Oaks, CA
Sat Mar 12, 2011
No, a quit claim would remove one person from the title, but not the loan or the responsibility to of that loan. The only way to get removed from the loan would be for the other borrower to refinance a new loan with her name only. Once you sign loan papers you can not be removed from them without the other borrower getting a new loan. Each borrower is equally responsible. Both persons credit will be affected equally.
0 votes
Linda Fox, Agent, Northridge, CA
Sat Mar 12, 2011
One can quit claim deed their share of the home but not the loan. The only way to get off the loan is to get a new loan. They can sell the home on a short sale and avoid foreclosure if the bank will allow the short sale.
0 votes
Spartak Hova…, Agent, Sherman Oaks, CA
Sat Mar 12, 2011
Unfortunately he is responsible for the loan since he is the primary borrower. The only option he has is to short sale the house. This will not damage his credit anymore that it already has.
She, on the other note, can not purchase the house from him. Short sale transaction has to be arms length, meaning no relative, friend or an entity that has a mutual interest or a relationship with the seller can not purchase the property.
0 votes
Diane Wheatl…, Agent, Upland, CA
Sat Mar 12, 2011
Dear Phil, If only it were that easy. The answer is no. This happens a lot in divorce cases where one party wants to wash his/her hands of any further liability associated with the property after the divorce is final. It is not possible unless the property can be refinanced therefore removing one of the original borrowers.

Very important to note is that you never want to quit claim your interest in a property or relinquish ownership rights if you remain on the note. You could be completely out of control regarding the property, ownership rights, etc. while remaining responsible for half of the loan. Not a good position to be in.

I do not know of any way to indemnify a co-borrower from negative credit reporting when they are listed as a responsible party on the note. So sorry. If anyone knows of a method to allow one borrower to be immune to credit hardship, I'm all ears. Best to you...

Diane Wheatley, Broker
0 votes
Emily Knell, Agent, Huntington Beach, CA
Sat Mar 12, 2011
No, he cannot just quitclaim himself off the Loan, he can quitclaim himself off the deed, but not the loan.

If the house isn't extremely underwater & your female cousin wants to keep the house, she can try to get a loan modification, in getting a loan modification it could be possible if her income his high enough & can support a modified payment on her own, she could get him OFF the loan, if she has experienced increases in her income over the past 11yrs.

On the subject of the loan modification itself. They aren't working out too well. Banks are not real interested in doing loan modifications. If they were, the foreclosure market would be just about dried up & you wouldn't still be seeing sooooooo many foreclosures & short sales out there.

Be wary of hiring anyone or paying up front for loan modification services, I've many clients do this, only for the bank to keep misplacing or constantly asking for another paystub, another paystub another bank statement, we lost the other one. The banks stick them in a "Trial Modification Period" only to have that go on for 6mos-12mos & then the bank denies that & urges you to go for a short sale.

Only 5% of loan modifications are working & even those are mostly short term rate reductions.

If you would like me to give you an honest opinion on what the home is worth right now please do not hesitate to contact me via email or phone.

Having purchased the home 11yrs ago, I can't imagine it's that much underwater unless your cousin cashed out some equity, in which case I would like to tell you about how the banks are handling equity loans in a short sale situation.

562-430-3053 cell
Realtor Since 1996
Short Sale Expert
0 votes
Jimmy Esqueda, Agent, West Covina, CA
Sat Mar 12, 2011
He can quitclaim from title but will still be liable for the loan. I have not seen a borrower removed from loan during a modification especially if they are the main borrower. A modification is simply that, modifying the terms of the loan.

He needs to find out the cause of her delinquency and her ability to continue paying on a new modified payment based on the current loan balance. If it doesn't look good they need to sell the property immediately. Every month that goes by is another mortgage late on his credit regardless of him being on title or not. Keep in mind that if she gets the government's modification program the first 3 trial payments are still considered partial payments until the loan is permanently modified.
0 votes
Linda Urbick, Agent, Blackhawk, SD
Sat Mar 12, 2011
A quite claim only applies to the title and not the loan. You can quit claim the deed giving full ownership to someone, but the only way to get the name off the loan is to have the cousin refinance only in her name and since the house is upside down, this will not be feasible.

Because both names are on the loan, the bank will look to both people for payment and if it goes into foreclosure both parties will suffer.
Web Reference:  http://www.homesalespros.com
0 votes
Tommy Lee, , 91502
Sat Mar 12, 2011
First time I have heard that one. But I have heard of something related.

My guess is the banks will see through this and still go after him. He was the primary and the NOD was filed while his name is on the deed. If he tries to get his name off, they will suspect bank fraud. They won't care if he lived in it or not. And they won't care if they are still together or not.

The best bet is to do a short sale. Otherwise, both are going to have their credit dinged.

Tommy Lee SFR (Short Sale and Foreclosure Certified Realtor)
DRE #01723594
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