Many times, deeding your property to a loved one or co-owner requires minimal paperwork and perhaps just a visit to your attorney and the county clerk's office, but you may also have to consult another interested party: your lender. If you have a home loan on the property, the lender may have a say in whether it's okay to deed the home over to the other person on the title. Your lender may have the right to enforce certain rules under your original loan agreement.
Do Look for the "Due-on-Sale"
You can determine relatively easily whether your lender can call your loan "due upon sale" after a change in ownership. Check your mortgage or deed of trust, which is the security instrument you signed at loan closing that makes the property collateral for the loan. You can also find it on the promissory note you also signed at closing. Most home loans include a due-on-sale clause that allows the lender to demand payment in full if you sign the property over to the other owner without first meeting certain provisions or gaining lender permission.
You Deed What?
While you, as a homeowner, typically have the right to sell, refinance or deed the property over to a joint owner or even a third party, you might raise red flags with your lender, depending on your initial loan agreement. For example, lenders usually place sale and title-transfer restrictions in exchange for down payment assistance grants or loans, and other benefits for first-time and low-income buyers. In such cases, lenders usually require you to occupy the property as your primary residence for a minimum number of years before selling, refinancing or transferring title. If you sign the home over to your co-owner early, your lender may question your motives and intention for the loan, and call it due.
Exceptions to the Rule
Your lender can't call the loan due if your title transfer meets one of several exceptions to the due-on-sale clause. For example, in a divorce, legal separation, or other property settlement arrangement in which one spouse leaves the family home to a co-owner ex-spouse, the lender may not enforce its clause. Your lender also may not require you or the new sole owner to pay up if you sign the home over to your child after a divorce, or if ownership passes to a relative as the result of your death. (See ref. 1)
How Deed They Know?
You or the new sole owner of the deeded property may keep up appearances with the lender by sending all payments in on time, but deeding a property over doesn't dissolve your financial responsibility for the loan, and your lender keeps tabs on title activity as a form of risk management. If recorded, the deed becomes a matter of public record, which your lender can dig up via a third-party company that conducts searches of public records. Lenders also check the title periodically to determine whether you have any new liens and whether you've kept up with your property taxes.
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