Q: Two of us jointly own our home, and want to refinance to get much lower interest rate. One does not have a good credit score, and has a lien on the title for an old debt that is being repaid on schedule. The other owner has good credit score. We are willing to sign a quick claim deed and have the owner with good credit score take on mortgage. Can we do this, and if so, how?
A: You might be able to quit claim the property from the person who has bad credit to the person that has good credit. But the person who has bad credit would no longer have an ownership interest in the property.
Even if you take this step, keep in mind that the lien placed on the property would not go away. The transfer of title would not release the claim.
You will probably need to pay off the lien to refinance the property. If you can afford to pay off the lien, great; otherwise, you might not be able to refinance the property at this time.
If the lien holder has been paid consistently and on time, the lien holder might consider subordinating the claim to the new mortgage. But that would be only the first step; your new lender would have to be convinced of the benefits of granting you a new loan on a property on which the lien holder would still have a claim.
You should start your research by talking to a good mortgage lender. Describe to the lender your circumstances and you may find out that you most lenders will not give you a new loan with that claim outstanding. If that’s the case, then the discussion would move to whether the two of you could refinance the property together and if in the course of the refinance you would have enough money to pay off the lien (if you’re required to pay it off at that time).
In some cases, lenders will take an application to refinance a loan from the person with the better credit history. The other person could be on title but that person’s credit would be ignored. If you find that you have to take the person with bad credit off the title to the home, you would need to draft a quit claim deed or other appropriate deed used in your state, to transfer ownership of the other person’s interest in the home to the person with the better credit.
One final point: Since you don’t describe your co-owner as a spouse, it would appear that you’re unmarried partners. To protect what each of you owns, you should hire a real estate attorney to draft a partnership agreement covering the ownership of the property.
Jan. 19, 2009.