Buying real property is a major decision for a married couple. Many options to purchase arise, depending on the circumstances of the spouses. Most often than not, both spouses’ names are in the mortgage and in the title. However, sometimes, only one spouse will apply for the mortgage, even if both spouses’ names are in the title. Other times, both spouses are liable for the mortgage, but only one spouse’s name is in the title. Different legal repercussions result based on different circumstances provided.
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 in 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 in 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 New York, 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 in the mortgage but both spouses’ names are in the title
Sometimes, only one spouse’s name is in the mortgage but both spouses’ names are in 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 in 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 in 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 in the mortgage, but only one spouse’s name is in 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 in the mortgage as a co-borrower, but whose name is not in 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 in 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. New York is an equitable distribution state, which means that, in case the spouses do not agree on how to divide their property, the court will not 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.
Both spouses´ names are in the mortgage (divorce)
When both spouses are co-borrowers in the mortgage, the spouses have the following options in the event of a divorce:
Sell the real property
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
Another way to handle real property in a divorce when both spouses’ names are in the mortgage is to remove one spouse’s name in 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 are still owners of the property
When refinancing is not an option, one spouse stays on the property with the children, but both spouses’ names are still in the mortgage and in the title. The spouses still share the responsibility of paying the mortgage. At the same time, both spouses are still considered owners of the property.
Both spouses’ names in the title (divorce)
When both spouses’ names are in 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 in the mortgage and title (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 New York 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.
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 in the mortgage but only one spouse is in 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, NY, Brooklyn, NY and Queens, NY. You can call us at 718-509-9774 or send us an email at email@example.com.