Can a Bank Stop a Quit Claim Deed?

Quit claim deeds are documents used to convey property from one party to another. They are typically quite brief, and allow one party to give whatever interest he has, if any, in a property to another party. Frequently used in divorce proceedings to remove the spouse who did not take ownership to the property from the ownership record, the quit claim is also used when a borrower gives a property back to the lender.

Sometimes called a "deed in lieu of foreclosure," the process of quit-claiming your property to the bank allows you to simply walk away from the property and from responsibility for the mortgage. If you can negotiate the process with your lender, it allows you to get out of a house that you can no longer afford while saving the bank the inconvenience and expense of foreclosing on you.

Using a quit claim deed carries two key problems for the quit-claimee, which is the person who receives title through the deed. When you quit claim your property to the bank, the process does not clear off any other debts, meaning that the bank could end up responsible for a second mortgage that you took out on your property. Also, when you quit claim your property to the lender, it then becomes responsible for the cost of keeping up the property including maintenance, utilities and property taxes.

The bank can refuse your quit claim deed if you do not have its permission to give it your property. If the banks does this, you will be back in the situation you were in before you quit-claimed the property, but you will have potentially paid legal and recording fees to do it. In addition, if the banks accepts the quit claim, it may still be able to come after you for the difference between the value of the house and your mortgage and get a "deficiency judgment." This risk is especially worrisome if you live in a state that allows a lender to come after you even after taking ownership of the property.

If your bank will not allow you to give it a quit claim deed in lieu of it foreclosing on you, you have three choices: attempt to have your mortgage modified, find a way to pay your mortgage, encourage the bank to foreclose. Since you have, most likely, already damaged your credit by letting your mortgage run late, the damage may not be as bad as you expect, and it will give you an opportunity to get out of a house that you cannot afford.