Can I lose my home?

[dave_risks]

What is the name of your state?What is the name of your state? Arizona

I am married and there is currently no will. My wife has a 13 year old son by a prior marriage. He lives with us for 6 - 9 months out of the year.

I am about to enter into a transaction which will make my wife the sole owner of our home. Approximately two weeks after that, I will be added back to the deed and my interests in the property would then be restored.

If, during those two weeks (i.e. prior to my name being added to the deed), my wife suddenly died, who would get the home?

I have a similar question regarding an automobile which is titled in her name only. If she died, and there was no will, who would get the auto?

Thank you so much.

 

[divgradcurl]

What is the name of your state?What is the name of your state? Arizona

I am married and there is currently no will. My wife has a 13 year old son by a prior marriage. He lives with us for 6 - 9 months out of the year.

I am about to enter into a transaction which will make my wife the sole owner of our home. Approximately two weeks after that, I will be added back to the deed and my interests in the property would then be restored.

If, during those two weeks (i.e. prior to my name being added to the deed), my wife suddenly died, who would get the home?

I have a similar question regarding an automobile which is titled in her name only. If she died, and there was no will, who would get the auto?

Thank you so much.

What type of transaction are you trying to do? Arizona is a community property state -- it's generally not so easy for either spouse to simply give up their rights to community property. This goes for both the real property (the house) and the personal property (the car). Was either the house or the car acquired prior to the marriage, or were they acquired during the marriage?

 

[dave_risks]

What type of transaction are you trying to do? Arizona is a community property state -- it's generally not so easy for either spouse to simply give up their rights to community property. This goes for both the real property (the house) and the personal property (the car). Was either the house or the car acquired prior to the marriage, or were they acquired during the marriage?

This gets sticky and I was hoping not to have to go into detail, but I suppose I have to...

The "house transaction" is a refinance of a home which we BOTH purchased one month prior to our marriage several years ago. We are both on the mortgage and the deed. However, because my credit stinks and hers is perfect, the lender will only lend to her. This requires that I quit claim the property to her so that the loan can be completed. However, after the deed has been recorded in her name (roughly 2 weeks later), she can (legally) quit claim the property back to me so that we both have an equal interest in the property. It is that 2 week time frame that I am very worried about.

The advice (from those not well versed in these matters, I'm sure) ranges from "not a problem" to "big problem". I have been told that, if she were to die (God forbid) during that 2 week period, and since there is no will, the house would actually go to her 13 year old son by a prior marriage.

She doesn't believe this to be true and thinks I'm being ridiculous asking her to sign a document stating that her intent is, in fact, to insure that I do NOT lose my interest in the property and that she will quit claim the deed back to me immediately after the other deed (in her name) has been recorded.

I guess there is a more general way to ask this question:

The assumptions are:

1. Real property (home) is deeded to Spouse A only.
2. Home referred to was acquired one month prior to marriage and was deeded to both Spouse A and Spouse B until recently.
2. Spouse A has a child by previous marriage.
3. Spouse A dies
4. There is no will

General Question: Given the above assumptions, to whom would the house belong should spouse A die?

Please help!

 

[divgradcurl]

Well, this is a tough question, because there are all sorts of complications associated with community property. But even if you assumed a worst-case situation, where the house remained her sole separate property when she died without a will, then you (the surviving spouse) would own the house in common tenancy with the son, probably 50% each, but the exact percentage would depend on the exact intestate succession rules of AZ.

Beyond that, however, it is unlikely that the house is really separate property anyway. If you are paying the mortgage on the house, then unless you are each paying your half of the money with purely separate property funds (like money from an inheritance, for example), then because you are using community funds to pay the mortgage, it is far more likely that the house has "transmuted" into community property (although your individual pre-marital contributions to the down payment, closing costs and mortgage may remain separate property). In the case of community prpoerty, if the wife dies without a will, then you, the surviving spouse, would retain between a 3/4ths and full ownership interest in the house, depending on the intestacy rules for AZ.

Finally, as an aside, maybe you should talk with a different lender. This whole thing sounds pretty shady -- most mortgages have a clause that requires the mortgage to be paid in full if the ownership interest in the house changes, and quit claiming half of the property to you would certainly qualify. Further, there may (or may not) be tax implications associated with the "gift" of the interest of the house back and forth. You might want to do some more research before you jump into this.

Also as an aside, some years ago my wife and I were in a similar situation -- one of us had good credit, one bad, and we wanted to refinance the house. We had bought the house together prior to marriage, and had never changed the deed to reflect the marriage. In our case, we changed the deed from joint tenancy to community property, and the loan company then processed the loan based on only the one party's credit and in the one party's name -- loan companys can do this because they know that community proerty may be used to satisfy the debts of a sigle member of the community. So, in your case, even though as the husband you have a community property interest in the house, the entire house can be used to satisfy the mortgage (if it came to that) even though the debt is only in the wife's name. You need to do some more investigation, and ask around -- there may be better ways to resolve your issues.

 

[dave_risks]

Finally, as an aside, maybe you should talk with a different lender. This whole thing sounds pretty shady -- most mortgages have a clause that requires the mortgage to be paid in full if the ownership interest in the house changes, and quit claiming half of the property to you would certainly qualify. Further, there may (or may not) be tax implications associated with the "gift" of the interest of the house back and forth. You might want to do some more research before you jump into this.

Also as an aside, some years ago my wife and I were in a similar situation -- one of us had good credit, one bad, and we wanted to refinance the house. We had bought the house together prior to marriage, and had never changed the deed to reflect the marriage. In our case, we changed the deed from joint tenancy to community property, and the loan company then processed the loan based on only the one party's credit and in the one party's name -- loan companys can do this because they know that community proerty may be used to satisfy the debts of a sigle member of the community. So, in your case, even though as the husband you have a community property interest in the house, the entire house can be used to satisfy the mortgage (if it came to that) even though the debt is only in the wife's name. You need to do some more investigation, and ask around -- there may be better ways to resolve your issues.

Thank you very much for your well thought out reply. And I'm sure you took some time with this one and I thank you for that too.

You said a couple of things that really got to me. The first was that the whole loan thing sounded a bit shady. I was actually working with 2 different loan officers and both offered the same remedy, i.e. I would quit claim the property to her so that she would be sole owner, then as sole owner she would take out the mortgage in her name only, wait for the deed to record, and sign a quit claim deed to restore my rights to the property and have that recorded. What kind of attorney would know if this was legal? Would that be a real estate attorney or ??

The other thing that you said in your final paragraph also intrigued me and I just wanted to ask you about that to make sure I understood you correctly. Sounds like you and your wife were in a very similar situation. Like you, we purchased the home as Joint Tenants about 1 month prior to our marriage. We have not changed the deed at this time. Now did I read you correctly that you refinanced under only one person's name (i.e. the one with good credit)? If so, was the deed under just one name or both of your names? If under both names, how did you accomplish that because I'm being told that you can't do that "up front" but instead have to do it via a quitclaim deed "later".

God, this is confusing!!!...thanx again.

 

[divgradcurl]

You said a couple of things that really got to me. The first was that the whole loan thing sounded a bit shady. I was actually working with 2 different loan officers and both offered the same remedy, i.e. I would quit claim the property to her so that she would be sole owner, then as sole owner she would take out the mortgage in her name only, wait for the deed to record, and sign a quit claim deed to restore my rights to the property and have that recorded. What kind of attorney would know if this was legal? Would that be a real estate attorney or ??

Well, it's not that such a thing would be illegal -- it's just that there are a few other things to consider, like tax consequences, and whether or not the mortgage has a "due on transfer" clause. A real estate attorney in your area would probably be best equipped to answer your specific questions. Life can get a bit complicated in community property states -- it may not always be simple to just quit-claim stuff back and forth. But the main problem I see in your question is the "due on sale" issue -- if the loan is in her name, and the house is in her name, why would it be okay with the loan company for them to keep the loan in her name, but all of a sudden have the collateral for the loan in two people's names? It doesn't make sense -- if there isn't a "due on sale" clause, then I guess this could be done -- but you don't want to find out the hard way!

Now did I read you correctly that you refinanced under only one person's name (i.e. the one with good credit)? If so, was the deed under just one name or both of your names? If under both names, how did you accomplish that because I'm being told that you can't do that "up front" but instead have to do it via a quitclaim deed "later".

The loan was in the name of the person with good credit only, but the house was titled as community property with both of our names (wouldn't make much sense for it to be community property under just one name!). The reason this works, as I noted above, is that when a debt is taken out by one person to benefit the community, then community property can be used to satisfy the debt. So, in this case, if the house is community property, a mortgage on the house "benefits the community," so even if the loan is only in one person's name, the entire house can be used to satisfy the debt (i.e., act as collateral).

In your case, since the house is titled as the separate property of each of you, it's not certain that the apparently separate property of one of the spouses can be used to satisfy a debt that is solely in the name of the other spouse -- so they want the collateral in one name only, that way if they ever have to foreclose on the house, they don't have to get into a battle over whether the house is community property or separate property, etc.

Of course, nothing is really that simple here! There may be good reasons why you want to keep the house titled as joint tenants instead of converting it to community property -- avoidance of probate is one reason. If this is the reason why you want to keep joint tenancy, you still may want to talk with a lawyer, because the "gifting" to her will sever the joint tenancy, and it may not be easily possible for her to "gift" back to you and recreate the joint tenancy.

But the main issue is the "due on sale" clause in the mortgage, if there is one.

 

[dave_risks]

The loan was in the name of the person with good credit only, but the house was titled as community property with both of our names (wouldn't make much sense for it to be community property under just one name!). The reason this works, as I noted above, is that when a debt is taken out by one person to benefit the community, then community property can be used to satisfy the debt. So, in this case, if the house is community property, a mortgage on the house "benefits the community," so even if the loan is only in one person's name, the entire house can be used to satisfy the debt (i.e., act as collateral).

In your case, since the house is titled as the separate property of each of you, it's not certain that the apparently separate property of one of the spouses can be used to satisfy a debt that is solely in the name of the other spouse -- so they want the collateral in one name only, that way if they ever have to foreclose on the house, they don't have to get into a battle over whether the house is community property or separate property, etc.

Of course, nothing is really that simple here! There may be good reasons why you want to keep the house titled as joint tenants instead of converting it to community property -- avoidance of probate is one reason. If this is the reason why you want to keep joint tenancy, you still may want to talk with a lawyer, because the "gifting" to her will sever the joint tenancy, and it may not be easily possible for her to "gift" back to you and recreate the joint tenancy.

But the main issue is the "due on sale" clause in the mortgage, if there is one.

Wow...sounds like you know your stuff!
1. If I'm understanding correctly, it seems to me that we could just modify (is it the title or the deed?) FROM Joint Tenancy TO Community Property.

2. If we want to do it the way you did, would we do that NOW and afterwards go for the refi in her name only? Or could that simply be done at closing of the refi?

3. I think that's what I'm reading into what you stated. If that's really what we should do, then there is no problem with any "due on sale" clause, correct?

4. And the loan would wind up in her name but the property would be titled as community property, correct?

5. Unless I totally misunderstood, this seems to accomplish exactly what I wanted to accomplish, i.e. at no time is my interest in the home jeopardized, correct?

By the way, I WILL see a Real Estate attorney.

 

[divgradcurl]

Wow...sounds like you know your stuff!
1. If I'm understanding correctly, it seems to me that we could just modify (is it the title or the deed?) FROM Joint Tenancy TO Community Property.

2. If we want to do it the way you did, would we do that NOW and afterwards go for the refi in her name only? Or could that simply be done at closing of the refi?

3. I think that's what I'm reading into what you stated. If that's really what we should do, then there is no problem with any "due on sale" clause, correct?

4. And the loan would wind up in her name but the property would be titled as community property, correct?

5. Unless I totally misunderstood, this seems to accomplish exactly what I wanted to accomplish, i.e. at no time is my interest in the home jeopardized, correct?

By the way, I WILL see a Real Estate attorney.

Well, I'm not really telling you HOW to do things -- these are questions you should ask your attorney, should you talk to one, or your mortgage broker. Different mortgage brokers may handle things in different ways, also the community property laws in AZ, while similar, may not exactly mirror those in CA, which is what I am basing my general answers on, so a local attorney will give you the best possible advice. But we were able to do this, I know others who have done similar things, and I can't see any reason that you've given that would seem to preclude you from doing the same thing. But we don't have all of the facts here, so it would be best for you to talk to a local attorney.

 

[dave_risks]

I just wanted to say "thank you" for the time and advice you've given me.

I have a much better understanding now. I've done some research on my own fueled by ideas which your replies generated. This is a very touchy situation for me (many reasons for that!) and I think that I understand enough now to at least head in the right direction and I really judge that that is due, in large part, to ideas that you have given me.

Thank you again!

 

[dave_risks]

Final Outcome

You wouldn't believe how difficult a question this turned out to be!

The first problem was locating a RESIDENTIAL Real Estate attorney. When attorneys are categorized, the category "Real Estate" combines both commercial as well as residential law. Unfortunately, the bulk of attorneys (or at least those I contacted) practice commercial real estate law and , of course, you don't discover that until you contact them.

When I did finally locate several, I frankly felt uncomfortable with their knowledge level of my specific situation. I mean, the question was a rather simple one (although it was, I admit, a two-fold question).

NOTE: THIS IS NOT ADVICE...IT SIMPLY REPRESENTS ANSWERS GIVEN ME AND MY INTERPRETATION OF THOSE ANSWERS:

Number One: Is it possible to structure a home loan such that only one person is the signer on the mortgage, but have the deed recorded as community property?

Number Two: If number one is NOT possible, and thus both the loan and the deed are in one person's name, does the other lose total interest in the property even though the state is a community property state?

As it turns out, at least as far as the information provided me, the answer to Number One is "YES". However, it is really a moot point because it is totally up to the lender, and the lender won't do this.

...And the answer to number two is that, since the title would be only in one person's name, that person is the sole owner and, until that person transfers back interest in the property (via a quit claim deed or other method), that person owns the entire interest in the property, community property state or not!

One other nuance that may be beneficial has to do with the "due on sale" clause in a mortgage. Basically, such a clause (which appears in virtually all mortgage loans since about the mid 1980s) states that, if interest in the property is transferred in any way, the lender may accelerate the loan payoff and force it to be paid off immediately. The main purpose of the clause was to prevent mortgage assumptions, which caused all kinds of problems for lenders when rates were skyrocketing in the 1980s.

The reason this became an issue for me is because I was advised by a mortgage broker that my wife could, in fact, transfer back 1/2 of the interest in my home to me after a very short period of time during which she was sole owner. But then several attorneys brought up this "due on sale" clause which, they said, might prevent her from doing so if the lender chose to force acceleration of loan payoff should she attempt to do the transfer. It turns out that the law which controls this is the Garn-St. Germaine Depository Institutions Act of 1982. If you research this, I believe you will discover, as I did, that there are specific instances given where the lender may NOT exercise its option to accelerate. One of those instances involves transfer to a spouse or a child. So, thanks to those professionals who caused me needless worry!!!

Thanx, all, for letting me vent and, in my venting, I hope I've provided some useful information for some.