Spouses and Mortgage and Title in New York City

More often than not, when real property is owned during a marriage, both spouses’ names are on the mortgage and on the title. However, sometimes, only one spouse will apply for the mortgage, even if both spouses’ names are on the title. Other times, both spouses are on the mortgage, but only one spouse’s name is on the title. Different legal repercussions result based on different circumstances provided, depending on the situation, whether it is during marriage, at divorce or at death. The outcomes are also different depending whether the spouses reside in an equitable distribution state such as New York or Florida or in a community property state such as Texas and California.

To avoid confusion, we also have separate divorce articles for only one name on mortgage and both on title and only one name on title and both on mortgage.

Title vs. Mortgage

The title reflects ownership interest over real property. It is evidenced by a deed conveying ownership from one person to another. This title deed is recorded with the county recorder or city register in order to be effective against third persons. Once the title deed is recorded, the public is put on notice that you are the new owner of the real property.

Unless you buy the real property in cash, you will need a mortgage to purchase it. A mortgage is an agreement between a lender and a borrower, where the lender lends money with interest to the borrower to purchase real property. As security for the loan, the property being purchased is offered as collateral on the mortgage. If the borrower fails to pay, or defaults on, the loan, the mortgage can be foreclosed, allowing the lender to recover the unpaid debt by taking ownership of the mortgaged property and selling it.

This mortgage is also recorded as a lien on the property with the county recorder or city register. The record of the mortgage on the title puts the public into notice that anyone who buys the property purchases it, subject to the mortgage.

Both Spouses’ Names are on the Mortgage and Title

More often than not, both spouses’ names will be on the mortgage and on the title. This means that both spouses are co-borrowers who are primarily liable for the loan on the mortgage. Both spouses have the shared responsibility to pay for the mortgage, and both spouses’ properties are liable in case the mortgage loan is not paid.

Given the shared responsibility for the mortgage, it is appropriate for both spouses’ names to be on the title. Both spouses’ name on the title shows that both spouses are joint owners of the property. The property cannot be sold without the consent of the other. In an equitable distribution state such New York or Florida, when real property is purchased by spouses together at the same time, the property is owned under tenancy by the entirety. In this case, when one spouse dies, his interest passes to the surviving spouse and not to the deceased spouse’s estate.

One Spouse’s Name is on the Mortgage but Both Spouses’ Names are on the Title

Sometimes, only one spouse’s name is on the mortgage but both spouses’ names are on the title. How or why did this happen?

There are many reasons why this can be the case:

One spouse’s credit score is higher than the other spouse’s

When one spouse’s credit score is higher than the other spouse’s, that spouse is more likely to be approved with the loan and will be entitled to lower interest rates. When both spouses apply for a mortgage and one has a lower credit score, the lender does not usually average the credit scores of the co-borrowers, but only gets the lowest credit score and bases the interest rates on that lower credit score. Having the spouse with the better credit score apply for a mortgage alone will save the married couple thousands of dollars due to the lower interest rate it was able to secure for the long-term loan.

On the other hand, having only one spouse apply for a mortgage loan will limit the married couple to a smaller amount of loan since the loan will only be based on that one spouse’s income and ability to pay. If both spouses apply for a loan, the lender will take into consideration the combined income.

Despite the disadvantages of having only one spouse apply for a mortgage, many couples utilize this route. Usually, after one spouse is approved of the mortgage and purchases the real property, the spouse executes a quitclaim deed in favor of the other spouse in order to have the other spouse’s name on the title.

In this scenario, only one spouse is primarily liable to pay for the mortgage, but both spouses own the property, subject to the mortgage. Since the quitclaim deed is executed after the mortgage is recorded on the title, the other spouse’s ownership interest is subordinated to the mortgage lien. In case the spouse fails to pay for the mortgage, the real property may be foreclosed, even without the consent of the other spouse (who is a joint owner).

The spouse purchased the real property before the marriage.

Another reason why one spouse’s name would be on the mortgage but both spouse’s names would be on the title is when a spouse purchased the property prior to the marriage. In that case, the spouse applied for a mortgage and purchased the property before the marriage. After marrying, the spouse may decide to execute a quitclaim deed transferring ownership interest to both the spouses since both spouses are sharing the responsibility for the mortgage payment.

Similar to the scenario above, only one spouse, in this case, is liable for the mortgage payment. In case the spouse defaults on the mortgage loan, the property may be foreclosed, even without the consent of the other spouse, who took ownership after the mortgage lien was recorded.

Both Spouses’ Names are on the Mortgage, but Only One Spouse’s Name is on the Title

This rare instance sometimes happens when one spouse purchases the property solely but asks the other spouse to co-sign or act as a guarantor. The other spouse who co-signs as guarantor is usually not primarily liable for the mortgage payment and only becomes liable when the primary borrower, the other spouse, fails to pay.

If the other spouse signs, not as a guarantor but, as a co-borrower, this is a disadvantageous situation for the spouse whose name is on the mortgage as a co-borrower, but whose name is not on the title. Here, both spouses are primarily liable and have the shared responsibility to make the mortgage payments. Yet only one spouse owns the real property. This means that spouse who owns the property can sell the house without the other spouse’s consent, signature, or approval.

If you are in this situation, you can rectify it immediately by asking your spouse to execute a quitclaim deed, transferring ownership interest to both of you. If your spouse refuses and your divorce, you may contest your spouse’s ownership interest, despite the title showing only one spouse as the owner, by presenting to the court evidence that you financially contributed to the mortgage payments, down payments, and real property taxes, or home improvements.

To avoid expensive litigation, however, it is advisable that both spouses include their names already on the title.

Effect of Divorce on the Mortgage or Title

When a married couple divorces, the spouses either agree or the court makes a decision on a property settlement.

In an equitable distribution state, such as New York or Florida, this means that only the spouse on the title owns the property during marriage. In case the spouses do not agree on how to divide their property in divorce, the court may not necessarily divide it equally but equitably in a way that is fair, based on a set of factors such as how much and what each spouse contributed to the marriage and what each spouse will need to move forward with the divorce.

In a community property state, such as California or Texas, all property acquired during marriage is presumed to be community property, regardless of whose name is on the title. At divorce, community property is divided equally. So if the house was bought during marriage, it would be sold and the proceeds divided equally. And if the house is separate property (bought before marriage, with separate property funds or given as a gift or inheritance during marriage), then it will go to the spouse whose name is on the title.

Both Spouses´ Names are on the Mortgage: What Happens at Divorce

When both spouses are co-borrowers on the mortgage, the spouses have the following options in the event of a divorce:

Sell the real property to satisfy the mortgage

The easiest way to handle real property in a divorce is to sell the property, use the proceeds of that property to pay off the mortgage debt, and split the remaining equity among the spouses. This allows the spouses to start anew with their lives.

Refinance the mortgage without selling the real property

Another way to handle real property in a divorce when both spouses’ names are on the mortgage is to remove one spouse’s name on the mortgage with the lender’s consent through refinancing. In this case, however, the spouse who refinances the mortgage must pass the lender’s eligibility requirements. The lender will look into that spouse’s income, debts, assets, and credit score. Based on these factors, the lender may or may not agree to a refinancing of the mortgage, may require the spouse to come up with a larger down payment, or may ask the spouse to have another person co-sign the loan as a guarantor.

One spouse stays on the property, both names are still on the mortgage

When refinancing is not an option, it sometimes happens that one spouse stays on the property (usually with the children, or maybe the one whose name is on the title, etc), but both spouses’ names are still on the mortgage. The spouses may still share the responsibility of paying the mortgage, or just one spouse pays, or one spouse pays more than the other, depending on their agreement or court order.

Both Spouses’ Names on the Title: What Happens at Divorce

When both spouses’ names are on the title, the execution of a quitclaim deed by one spouse in favor of the other spouse in cases of divorce results to the transfer of ownership of the property from one spouse to the other spouse.

The spouse usually executes the quitclaim deed only when: (a) refinancing has been approved, the spouse’s name has been removed from the mortgage, and the spouse’s equity in the property has been paid, or (b) an amount equivalent to the spouse’s equity in the property being transferred in the quitclaim deed has been given to that spouse.

Both Spouses’ Names on the Mortgage and Title: What Happens at Death

In cases of death, when one spouse dies, the property passes to the surviving spouse, subject to the mortgage. In this case, the surviving spouse assumes the mortgage. Otherwise, the property may be foreclosed.

There are instances in an equitable distribution state like New York or Florida, when the property is owned by the spouses, not as tenants by the entirety but as tenants-in-common. To create a tenancy by the entirety, the quitclaim deed must transfer ownership from one spouse to both spouses jointly (i.e., A grants to A and B the entire property). When a quitclaim deed is executed by one spouse in favor of the other spouse, transferring one-half interest over the property (i.e., A grants to B ½ interest over the property), the spouses own the property as tenants-in-common. When a property is owned as tenants-in-common, the interest of the deceased spouse goes to the estate and not to the surviving spouse. The estate and the surviving spouse have the shared responsibility to pay for the mortgage debt jointly.

In a community property state such as California or Texas, the surviving spouse gets the entire property if it’s community property. If it’s separate property and there is no will, then the surviving spouse may have to share it with the deceased spouse’s other relatives, such as children, parents and siblings.

When only one spouse’s name is on the mortgage but both are on the title and there is a dispute regarding each spouse’s equity in the property, you need to be represented by a lawyer when negotiating with the other spouse in the event of divorce. If you need to rectify a mistake where both spouses are on the mortgage but only one spouse is on the title, consult with a lawyer to prepare a quitclaim deed which should be recorded in the county register. Should you need assistance, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].