Do Quit Claim Deeds Protect Credit Score Ratings

by M. Hunt

Ask Kate do Quit Claim Deeds protect Credit Score Ratings: Kate, I am preparing a quitclaim deed from myself to my husband on a condominium we both own that is now in a trust. (Our trust.) My question is the following: what are the consequences with the mortgage since we are both in the mortgage contract?

Continued... We are current on our payments and have never been late. What would happen to my credit score which is now in the 900's if he were to short sell the property in the future? It is very unlikely, but I just want to make sure that I am clear with my decision to quitclaim this property to him. Thank you so much, M. Hunt

Kate Answers: Do Quit Claim Deeds Protect Credit Score Ratings

Quit claim deeds seldom live up to the expectation of homeowners.

Here's why! Quit claim deeds do not change who is responsible for future monthly house payments nor do they protect credit score ratings from future mortgage issues, such as a short sale.

Quit claim deeds transfer the right to ownership, but do not alter the names on the mortgage documents. When one homeowner quit claims off the title to the property, they transfer their ownership. (They quit their claim to the real estate.) But they remain liable for the mortgage.

So to answer your question, yes, more than likely, your credit scores of 900 will be adversely affected by a future short-sale. Why? Even though you record a quit claim deed, you will still remain responsible for the mortgage until it is paid off in full.

Quit Claim Deeds & Due-on-Sale Clauses

As a side note, most institutional lenders include due-on-sale clauses in promissory notes to ensure their mortgages are repaid in full when ownership is transferred, aka the property is sold. Today, it is generally believed when one spouse quit claims to the other, this action will not trigger the due-on-sale provision. But as in all legal matters, you would need to consult an attorney to know if this is specifically true in your case.

Protecting Credit Score Ratings

If a quit claim deed does not relieve you of your liability to the lender, how can you protect your credit score ratings? Refinance your mortgage and to be on the safe side, ask specifically to be removed from the title.

Otherwise, any mortgage payments paid late, short sales, or foreclosures are your joint responsibility and will be reported to credit bureaus. Read about the three major credit reporting agencies here and how you can monitor your credit score ratings.

Do you live in a community property state?
Depending on where a house is located, several states enforce community property laws governing property ownership between spouses. So if a married couple is interested in refinancing a mortgage to remove a spouse, the subject of community property should be discussed upfront with their lender to avoid unpleasant surprises at closing.

In additional, you could ask your lender if, instead of refinancing the mortgage, your spouse could individually assume the mortgage. This is a little know and relatively inexpensive way to avoid a more costly refinance. Call your loan servicer (your mortgage coupon booklet will have the toll free phone number) for details.

You will find much more information on quit claim deeds at Get-Your-Best-Mortgage-Rate. For instance, meet Marcel who discovered his business partner, affected by Hoarder's Disease, had ceased making the mortgage payments at Credit Score Ratings and Quit Claim Deeds

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