Buying your spouse out of the house is not unusual, but take some consideration before getting a loan do so.
Q: My ex-husband wants money before he signs the house over to me. We have no mortgage on the home. I’d like to know if I can take home equity loan just to pay him off. The loan would be in my name only. I have lived here for 38 years.
A: It’s not unusual for a spouse to request to be bought out when the spouse gives up his or her interest in the marital home. There is nothing wrong with your ex-husband asking for his due when you two split up. In fact, we usually tell couples to take care of all of the financial issues at the same time ownership issues are taken care of.
We frequently see a spouse give up ownership rights to a home only to have the spouse that keeps the home later unable to sell it or refinance the home. The spouse without the home might end up having his or her credit damaged and may be unable to buy a home or get credit.
Yes, you can apply for a mortgage or equity line of credit with a mortgage lender or mortgage broker. When you apply and go through the process, you need to make clear to the lender that you will be the only person on the title to the home and that as part of the refinancing or extension of credit, funds from the loan closing will go to pay off your ex-husband and that you will end up being the sole owner of the home at the closing.
This means that when you close on the home, your ex-husband will need to deposit a deed conveying title of the home. The settlement agent, closing attorney or title company can hold on to the deed pending receipt of funds from the loan closing. When the funds are available to your ex-husband, the settlement agent can record or file the deed and you’ll become the sole owner of the home and have use of any of the loan proceeds after payment of the amount you owe to your ex-husband.
A typical question we get asked is whether your ex-husband should give you a quit claim deed. Yes, he can give you a quit claim deed, but he can also give you a warranty deed. In fact, he can sign any deed that will convey his ownership rights in the home to you. A quit claim, warranty or special warranty deed will all do the job in transferring ownership rights. The difference is in whether your ex-husband is giving you any representations as to what he owns and what he gives you.
This is a legal distinction that may not matter to you right now, but it could matter a great deal in the future. In some states, quit claim deeds are disliked by some title companies and recorders offices. You can ask your settlement or closing agent or call your local recorder’s office that records deeds and other legal documents to see which type of deed they prefer. If you live in one of those states, your ex-husband can give you a warranty deed to convey his ownership interest in the home to you. In other states, he can give you the warranty deed or a quit claim deed.
The key is to make sure that he still owns his interest in the home and that there are no liens that can attach to his interest when he conveys his ownership interest to you.
For example, if your ex-husband is in trouble with the IRS or has a judgment against him, neither the quit claim nor the warranty deed will get rid of the IRS lien or a court judgment. For this reason, we usually encourage spouses working on transferring title to each other to work with a real estate attorney or other person that knows what they are doing and can get the job done properly for you.