Why does lender require both spouses on the deed?

pattorney · Joined: 22 Jan 2010 Posts: 4 Location: pennsylvania

The deed is in my name only. I do not want to add my spouse to the deed. But I need my spouse's income to qualify for this cash-out refi. I purchased the house before we married so it is titled in my name only and the existing primary mortgage is in my name only.

My spouse is willing to co-sign the cash-out refi mortgage and the note without also adding his name to the deed. Why is the lender requiring that his name be added to the deed? Is it just this particular lender? If so will I be successful just finding another lender?

Other facts: Pennsylvania. Loan to value ratio only 50%. Both of us have very good credit scores. We are doing this for debt consolidation (primary, equity loan, auto loan, credit cards), so will have no other debt once we obtain this new primary mortgage cash-out refi, and together our incomes meet the front and back ratios.

Parents co-sign for kids without being on the deed (co-sign the note, not sure whether parents usually co-sign the mortgage too) so why can't the spouse co-sign the note and mortgage without being added to the deed?

With a loan to value ratio of 50% (100k loan, 200k house) would seem lender should be willing without forcing me to add spouse to the deed.

Thank you in advance for any insight, solutions, referrals here in Pennsylvania.

m2c · Joined: 03 Aug 2005 Posts: 937

Not 100% sure if PA is a judicial foreclosure state or if there are dower rights but the requirement is a title issue. By virtue of marriage your after-acquired wife has a dower interest in your property. This is a non-title issue and applies to either spouse not in title. For example you alone could sign a deed to sell “your” property but not title insurance company would insure the title due to the outstanding dower interest. Not really that big a deal since your wife would not be liable since she is not signing the obligating document, i.e., the note. HOWEVER, you may wish to get advice on whether you may wish to add her. Some considerations are building a separate credit history for your wife and the easier ability of your wife to refinance if you should pre-decease her (in Fannie parlance this is known as the continuing obligation requirement)

Your LO should be able to give you direction as to the title insurance and law (in a nonlegal fashion) in PA.

pattorney · Joined: 22 Jan 2010 Posts: 4 Location: pennsylvania

Thanks but let me be more clear...
My Spouse IS signing the note and the mortgage, need both incomes to qualify. The question is why must the title be changed from just me to me and my spouse, I don't want to do that.

Pennsylvania has no dower rights and is not a community property state. Pennsylvania is a judicial foreclosure state. With both names on the mortgage the mortgage company can foreclose. With both names on the note the lender can come after both of us or either one of us for the full amount.

Again, if my parents co-signed they wouldn't be required to be on the deed right? So why does this lender require my co-signing spouse to be on the deed?

m2c · Joined: 03 Aug 2005 Posts: 937

Ops, misunderstood. Assuming PA is a dower rights state, all your wife would normally need to do is sign aways dower rights on the mortgage deed. I too do not understand why she should be on the actual title although a JWROS might not be such a bad idea assuming PA has JWROS deeds.

TimtheMortgageGuy · Joined: 16 Jan 2008 Posts: 96 Location: Rosemount, MN

So, he will be on the hook for the note, but you don't want him to be an owner? Lucky for him it is required. Why don't you want him on there?

pattorney · Joined: 22 Jan 2010 Posts: 4 Location: pennsylvania

Thank you for your reply, but still - why?

Are you saying that otherwise there is no quid pro quo? That is, are you saying that even though he co-signs the note promising to be held personally liable for the payments, that the lender could not hold him liable for the payments under the signed note because he received no "benefit" in exchange for contracting since his name is not on the deed?

Look, he understands all of this. He is happy to sign the note and the mortgage without his name being on the deed/title. Parents co-sign notes without being on the deed, why shouldn't a spouse? WHY? Why does the lender require he be on the deed in order to sign the note??? (There are a myriad of reasons that I want just my name on the title, but they are not important to this particular discussion, another day......) :?:

Can someone tell me is this just a FNMA/Freddie requirement and if so why? I believe maybe non-conforming lenders would allow that he sign the note and mortgage without he being on the deed. Again, need his credit and mine, both to qualify. Thanks.

m2c · Joined: 03 Aug 2005 Posts: 937

I continue to be mystified as well. You are on the mortgage deed and this is all Fannie or anyone else needs. See Fannie Selling Guide A2-2.1-03:
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Waivers of Rights of Redemption — The instruments include a specific waiver by the borrower, and, if applicable, the borrower’s spouse, of:
– any legally waivable statutory right of redemption after foreclosure,
Note: Statutory rights of redemption that are not waivable under applicable law are acceptable only to the extent the instruments do not grant more favorable rights to the borrower on default and foreclosure than those granted in the Fannie Mae/Freddie Mac uniform instruments for the applicable jurisdiction.
– any right of homestead, dower, or similar marital right, and
– rights of presentment and notice of dishonor, if a waiver of rights is necessary to protect the note holder’s interest.
____________________________________________________

There are MANY circumstances where one spouse doesn’t want to be in title – e.g., spouse in a profession subject to suit-happy attorneys. Not an unusual situation at all. No idea what the broker/lender is giving you are hard time. Ask the broker/lender what would happen if you get in title and immediately quit claim back to the other spouse after the mortgage is filed. Sure it would cost you about $100 plus recording fees for the two deeds but maybe this is the only solution short of going to another broker but you might have to pay a new appraisal which would be more than the cost of the two deed route.

Again not familiar with PA title laws. Think EricJ lends in PA. Where's Eric when you need him!

pattorney · Joined: 22 Jan 2010 Posts: 4 Location: pennsylvania

Thank you for your learned response. Your reply is the best in that it recognizes the quandry, directly addresses the issue including the citation, and offers a hopefully viable solution. I really like your example of the doctor not wanting to be on the title. My example was a parent co-signing. Certainly then there is no hard and fast rule that the parties to the note be matched exactly to the parties on the deed.

Applied to two lenders, one is the big bank where we have our checking, and the other a storefront mortgage broker whose expertise should be reliable. Both insisted that my spouse be on the deed, neither provided a sensible explanation.

I am in no position to argue with the lenders with citations, and the lenders are of course simply relaying what their funding source has told them - "we need both names on the deed".

The mortgage broker also suggested your quitclaim idea which I suppose is our current plan. Add the spouse now then have the spouse execute a quitclaim a month or two later. Yet a few words of caution.... (1) Lender/Fannie/Freddie might get upset if they find out that we changed the title just to get the financing then immediately changed it back. Could it be a breach? Will the county recorder's office even notify the lender as they probably are supposed to since the lender has priority? (2) Be careful when adding a spouse to a deed. I read a Virginia case where the spouse was added using a gift deed (no recordation tax) rather than via a general warranty deed. Soon after this the couple is divorcing. The first spouse wants to present evidence that the deed was changed only to get financing and that the house is not really "marital property". The court says too bad cause you used a deed that says "gift" so we will not allow you to prove otherwise, this house is now marital property. (3) Always the chance that your spouse changes their mind and decides not to sign a quitclaim - LOL!

m2c · Joined: 03 Aug 2005 Posts: 937

Your oblique reference to Learned Hand made me consider the implications of your “handle”. Excuse my mild, possibly derogatory, adjective used with attorney in previous post.

More mystified now that you mention two lending sources gave you the same answer. I have no real knowledge of ErikJ’s operation but he is a monitor on this forum and think he loans in PA (he’s out of NJ). You might “pm” him through the “private message” function to see if he can help. Again I am NOT recommending him since I have no personal knowledge or his rates, service, etc. but he may be able to clarify the deed demand if this is a "PA issue".

Part of what you mentioned refers to the “due on sales” clause. On an inter-spouse transfer, I don’t see this issue ever being forced. There is a separate issue on future refinances based on “continuity of obligation” but since both of you are on the note, you’re OK for future transactions. Little more complicated and you can read more in the Fannie selling quide, B2-1.204 or announcements 08-22 and 07-23. The “continuity” should not be an issue in the current transaction since you are both in title and obligated on prior loan.
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Exemptions to enforcement by Fannie on Due on Sales clause are in the servicing guide III, 408.02 and you likely have enough wiggle room under one of the provisions listed below:
III, 408.02: Exempt Transactions (01/31/03)
We do not require the servicer to enforce the due-on-sale (or transfer) provision for certain types of transfers or related transactions. Generally, the servicer must process these exempt transactions without reviewing or approving the terms of the transfer:
• a transfer of the property to the surviving party on the death of a joint tenant or a tenant by the entirety;
• a transfer of the property to a junior lienholder as the result of a foreclosure or acceptance of a deed in lieu of foreclosure for the subordinate mortgage;
• a transfer of the property (or, if the borrower is an inter vivos revocable trust, a transfer of a beneficial interest in the trust) to a relative of a deceased borrower (or, in the case of an inter vivos revocable trust borrower, to a relative of the individual who established the trust), as long as the transferee will occupy the property;
• a transfer of the property (or, if the borrower is an inter vivos revocable trust, a transfer of a beneficial interest in the trust) to the spouse, child(ren), parent(s), brother(s) or sister(s), grandparent(s), or grandchild(ren) of the borrower (or, in the case of an inter vivos revocable trust borrower, of the individual who established the trust), as long as the transferee will occupy the property;
• a transfer of the property (or, if the borrower is an inter vivos revocable trust, a transfer of a beneficial interest in the trust) to a spouse of the borrower (or, in the case of an inter vivos revocable trust borrower, of the individual who established the trust) under a divorce decree or legal separation agreement or from an incidental property settlement agreement, as long as the transferee will occupy the property;
• a transfer of a property that is jointly owned by unrelated co-borrowers from one of the borrowers to the other, as long as the borrower who is gaining full ownership of the property will continue to occupy it and the transfer occurs after at least 12 months have elapsed since the mortgage was closed;
• a transfer of the property (or, if the borrower is an inter vivos revocable trust, a transfer of a beneficial interest in the trust) into an inter vivos trust (or, if the borrower is an inter vivos revocable trust, into a new trust), so long as the borrower (or the individual who established the original inter vivos revocable trust) will be the beneficiary of the trust and the occupant of the property;
• the granting of a leasehold interest that has a term of three or fewer years and does not provide an option to purchase the property. If the lease has a renewal option that would allow the term to extend beyond three years, this exemption does not apply;
• the creation of a subordinate lien, as long as it does not relate to a transfer of occupancy rights; or
• the creation of a purchase money security interest for household appliances.
However, if the individual transferring the property requests a release of liability, the servicer must review the credit and financial capacity of the individual receiving the property. The servicer may approve the release of liability if it believes the recipient is capable of assuming the mortgage obligations (and the MI agrees to the release, if the mortgage is insured). If the servicer does not believe that the property recipient is credit worthy or if the MI does not approve the release for an insured mortgage, the servicer should deny the request for the release of liability, although the transfer may still be processed without the release. If the request is denied based solely on the MI's decision, the denial letter should state that fact.
The servicer should advise the hazard (and, if applicable, flood) insurance company, tax authorities, the mortgage insurer, and other interested parties (including the first mortgage servicer if the transaction relates to a second mortgage) when it processes any of these transactions. We do not need to be notified unless the servicer agrees to a release of liability and we are the owner of record for the mortgage. In that case, the servicer should prepare an assumption and release agreement and either execute the agreement on our behalf (if it has our limited power of attorney to execute such agreements) or send it to our document delivery facility for execution (if it does not have our limited power of attorney or has one that does not permit it to execute such agreements). If the servicer is the owner of record for the mortgage, it should execute the assumption and release agreement, sending a copy of the executed agreement to us (if we hold the mortgage in our portfolio or are acting as the document custodian for an MBS pool mortgage) or to the applicable document custodian (for any other MBS pool mortgage).