In a divorce, if one spouse will keep the home, the other spouse should quit claim deed the home before you refinance the loans on the home.
Q: In 2008, as part of my divorce decree and to pay off my ex-spouse, I applied for a “no fee” low interest rate, home equity line of credit (HELOC). I also used the proceeds to pay off our old loan. I planned to keep the HELOC a short period until I could go back and switch to a conventional mortgage.
The lender prepared documents for our signatures including a quit claim deed that ex-wife was to sign. I signed first and the mortgage lender then met with my ex-wife. Unbeknownst to me, my ex-wife refused to sign the quit claim (alleging that I still owed her more money outside the divorce settlement). The lender did not inform me of this but approved my loan anyway and proceeded to close the loan, make payments to the old lender and my ex-wife.
Several months later, when trying to get a conventional loan, I learned that my ex-wife was still on title. I never would have borrowed $435,000 if I had known the lender failed to execute the quit claim that had been represented to me in the pre-closing documents. My ex-wife wants a lot of money to straighten this out now.
Is a pre-closing quit claim form prepared by a lender, and represented as part of the loan contract, considered part of the good faith estimate federally regulated by TILA or RESPA? I have retained an attorney who doesn’t seem to want to hold the lender legally accountable. He did file a district court complaint on my behalf, and the lender responded that it wants to settle the matter.
I have done internet searches on a variety of keyword phrases, like “good faith estimate and quit claim,” “TILA quit claim malpractice,” “TILA and RESPA good faith lawsuit,” etc. I’m not asking you for legal advice but I’d like to know your thoughts.
A: Our initial impression of your question tends to see that you might have certain issues confused.
The Truth in Lending Act and the Real Estate Settlement Procedures Act (RESPA) are laws intended to govern the manner in which lenders interact with their borrowers when it comes time to finance or refinance their homes. Generally, the Truth in Lending Act requires lenders to give borrowers certain disclosures regarding a financial product of interest to them. The Real Estate Settlement Procedures Act governs the documentation and other disclosures and the way payments may or may not be made in a residential real estate transaction.
If your lender made all of the proper disclosures to you under the Truth in Lending Act and the Real Estate Settlement Procedures Act, the lender may be on the clear with those federal statutes. It may be that you have approached your problem with your lender from the wrong direction.
But it would be interesting to know whether the documents you signed with your lender indicated that you would have sole ownership in the home. When you apply for a loan, the lender will complete an extensive application for you. That application will indicate the assets you own, the liabilities you owe and will also include a statement as to the manner in which you intent to hold title to the home under the loan you will be closing.
Assuming that your application indicated that your loan application disclosed that your ownership of the home under the loan you were obtaining would be under your name alone, the lender knew to have a quit claim deed signed by your ex-spouse to convey her ownership in the home to you.
The loan documents you signed would have shown you as the sole borrower under the loan, including as the sole person signing the mortgage. Once your ex-spouse failed to sign the quit claim deed, she would likely have had to have signed the mortgage. When any borrower takes out a loan with a lender, that borrower must sign a mortgage or other document that would give the lender the right to take the property over if the borrower fails to make payments on the loan. In your case, if your ex-spouse failed to sign the quit claim deed, she would still be an owner of the property and would have to have signed the mortgage.
Since the mortgage form was given to you for signature and that form should not have had your ex-spouses name on it, the form would have to have been doctored after you signed it. You might be able to argue that the addition of your ex-spouse’s signature to the mortgage after you had signed it might amount to a fraud by the lender.
But you’d have to talk to your attorney further about the fraud issue or on any laws that the mortgage broker violated by doctoring the form without your approval. You may also want to talk to an attorney with real estate law experience also. However, if the document had your name and her name on it, you obviously couldn’t argue that issue against the lender.
The real issue you face is that your lender probably followed all of the documents but at the last minute when the loan would not have closed if the quit claim deed was signed, the lender punted, modified some of the documents to allow the loan to close but without giving you the information necessary to decide whether to go forward on the deal or not.
Finally, if your divorce decree ordered you to pay off your spouse, presumably that same divorce decree would have ordered your ex-spouse to sign over title to the property at the time of payment. On that issue you might want to have a conversation with your divorce attorney to determine if you can have the judge order your ex-wife to sign off on the quit claim deed, as per the divorce decree.
And, if you believe that your current attorney isn’t representing your best interests, you may need to have a conversation with him or her to find out if he or she can continue to represent you or whether you need to find another attorney. Having said that, if the lender has agreed to negotiate a settlement, then you might want to explore that path with your current attorney. During that discussion, the lender can come forward and pay any expenses you have incurred in cleaning up the mess they might have caused you. We hope our real estate advice helps you.