Smug Banks: Quit Claim Deeds and Loan Modifications

by Corey from Holyoke, MA and by Linda from Little Rock, AR

Ask Kate about smug banking attitudes toward quit claim deeds and loan modifications: After Corey quit claimed his home in the divorce, the bank modified the mortgage without his permission, adding $200,000 to the loan balance. But get this. The bank justified their actions by telling Corey, "We can do what we want." Linda's bank added a $30,000 balloon payment to her mortgage modification which is due when she is living on Social Security retirement income.


Ask Kate: Loan Modification Adds $200k to Mortgage Without Permission After Quit Claim Deed

By Corey from Holyoke, MA

Loan Modification Adds $200k to Mortgage Without Permission After Quit Claim Deed
Good morning Kate,

I was divorced from my now ex-wife in 2012. She was awarded the marital home with the condition she must refinance my name off the mortgage or sell the house after 5 years.

Our divorce decree states she is solely responsible for paying the mortgage and all carrying costs of the house.

In 2013, my ex-wife fell ill and became delinquent on some of her mortgage payments. The lender offered her a loan modification which she applied for and was accepted. The lender only required her to sign the modification paperwork The lender increased the principal amount by rolling in past fees and missed mortgage payments, negative escrow etc. to the amount of $200k+. They changed the interest rate and added 10 more years onto the loan.

I confronted the lender on how they could alter the original loan so drastically with out my signature, how can they increase the amount I am responsible for without my approval?

The only excuse they gave me was that I signed a quit claim deed and they can do what they want.

To my knowledge a quit claim deed releases the interest I had in the physical property but not the loan. They have ruined my credit with this modification, how is this even legal? Is it?

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Kate's Answer: Loan Modification Adds $200k to Mortgage Without Permission After Quit Claim Deed

Hi Corey,

We. Can. Do. What. We. Want.

I am so thoroughly disgusted and fully exasperated with Fannie Mae, Freddie Mac, and banks using recorded quit claim deeds as an excuse to do what they want.

If the quit claim did release you from the responsibility of paying back the mortgage (and it didn't), how can the bank legally increase your loan balance without your permission?

Oh but they can! Here is a direct quote from Fannie Mae...
In cases where a borrower and co-borrower are unmarried and either borrower or co-borrower relinquish all rights to the property securing the mortgage loan through a recorded quitclaim deed, the non-occupying borrower that has relinquished property rights is not required to provide income documentation or to sign the HAMP documents but remains liable for the outstanding mortgage debt.

Now I'm not an attorney and cannot give legal advice. But I can tell you, I'd be tickled pink to see a class action suit on behalf of ex-spouses who signed quit claim deeds to their homes, only to end up with mortgage modifications that they are responsible to pay back.

Tell Your Friends Who Are Contemplating Divorce


So while it may be too late for you, I hope everyone reading this will pass on my warning to their friends who are contemplating divorce: Your ex-spouse may be able to modify the mortgage without your permission or knowledge after you sign a quit claim deed.

Signing a Quit Claim Deed That Results in Loan Modification


Here are three B-I-G reasons why signing a quit claim deed that results in a loan modification without your perusal is a big deal.

1. Damaged Credit History: A loan modification is a blight on a credit report and has a high likelihood of lowering credit scores for a few years.

2. Increased Debt: Plus, as in the case of Corey, he now owes an additional $200,000 on a house he no longer owns since he quit claimed it to his ex-spouse in the divorce.

3. Diminished Loan Qualifications: The recent increase to the loan balance that Cory now owes on his ex-wife's house could make it more difficult for him to buy a house of his own or even qualify for a new credit card.

I hope a free consultation with a local attorney could bring you a legal solution. Please let me know if this is the case. I am sure many readers in your shoes would appreciate knowing. Best wishes,

Ask Kate

Ask Kate: Why Would I Want a Balloon Payment with My HAMP Loan Modification

By Linda C. from Little Rock, AR

Why Would I Want a Balloon Payment with My HAMP Loan Modification
Kate,

Why would I have to pay a $30,000 balloon note at the end of my 8 year HAMP loan modification?

I was just approved for a loan modification through HAMP and Chase Bank. They sent me the paperwork and I was shocked to see that they wanted a balloon note after 8 years of paying my mortgage on time.

I will be 70 by then, and living on Social Security. It just seems crazy to me. Are they likely to finance the balloon note?

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Kate's Answer: Why Would I Want a Balloon Payment with My HAMP Loan Modification

Hi Linda,

The loan modification is setting aside a portion of what you owe to paid back at a later date, aka a balloon payment. Meanwhile, you do not make monthly payments on that amount. This is the lender's attempt at making your mortgage payment more affordable.

But there are no guarantees that the lender will approve a refinance in 8 years to roll in the $30,000 balloon created by a HAMP loan modification unless your loan documents state so.

If you are in danger of foreclosure without the loan modification, it's possible that you might not have too much to lose by taking a chance that the lender will refinance the mortgage down the road. But only you can make that determination.

Read Your Mortgage Modification Fine Print


Sometimes, lenders will reduce the amount owed if a borrower makes HAMP payments on time. But you will need to read your loan modifications fine print to know if you are being offered these terms. Best wishes,

Ask Kate

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