Question: My husband and I own property on the West Coast with our daughter. The property is jointly owned by all of us, with rights of survivorship. Recently, we learned that our daughter obtained a home equity loan -- without our permission or our signatures. We have been unable to obtain copies of the signed documents from either our daughter or the bank.
Is this legal? If so, this means that either a husband or wife could mortgage jointly owned property without the knowledge or permission of the spouse.
We can't do anything about the current loan, since our daughter has already received and spent the cash. However, we want to protect ourselves -- and our equity -- from similar future occurrences.
Answer: Aren't children wonderful? Sometimes we can't live without them, and sometimes we can't live with them.
The first thing you should know is that I do not practice law on the West Coast; it is recommended that you immediately contact a knowledgeable real estate attorney in the jurisdiction where your property is located.
However, here are some general observations.
There are many ways in which title to property can be held when there are more than one owners:
- Tenants By The Entirety: This is reserved for married couples. Each party owns the entire property. Upon the death of one spouse, title automatically (by operation of law) becomes vested in the surviving spouse. Probate is not necessary for a disposition of the property, although if there are other assets, probate may still be required.
A judgment creditor cannot force the sale of the property unless the judgment is against both owners. Furthermore, a mortgage lender will not make a loan to one of the owners unless both owners sign the mortgage (deed of trust) documents.
- Joint Tenants: Here, two or more persons jointly own real estate. Although some states specifically require language in the deed that this is a joint tenancy "with right of survivorship", in most jurisdictions, upon the death of one joint tenant, the property automatically (by operation of law) vests in the surviving joint tenant (or tenants).
However, unlike tenants by the entirety, a joint tenancy can be broken by any one of the joint tenants -- without the permission of the other tenant or tenants. By a simple deed, a joint tenant can have the property reconveyed into all of the parties so that title is held as tenants in common.
- Tenants in Common: Under this form of ownership, each owner owns a percentage of the property. There is no requirement that the ownership interests be identical; one tenant in common can own only 1 percent of the property with the other owner holding 99 percent.
Can a mortgage lender loan money to only one of the parties in ownership? The real question is not whether the lender can lend, but whether they want to do so.
When a mortgage lender makes a loan to a homeowner, that lender wants to make sure that there is security in case the homeowner is unable to make the monthly mortgage payments. This security is normally found in the mortgage documents -- usually called a "Deed of Trust."
Oversimplified, when you borrow money to purchase (or refinance) a house, you sign two legal documents: a promissory note, and a Deed of Trust.
The Deed of Trust is the security that lenders want before they will agree to lend you money. When you sign that document, you are agreeing to allow the Trustees who are named in the Deed of Trust (selected by the lender) to foreclose on your property in the event you become delinquent on your mortgage payments.
But, for example, if you and your husband own the property jointly with your daughter, I seriously doubt that any legitimate lender would agree to make a mortgage only to your daughter, without obtaining the signatures of all persons on title.
Thus, my hunch is that either your daughter changed title to a tenant in common arrangement and found a lender who would be willing to lend only her some money, or that your daughter borrowed money and did not secure the property with a mortgage.
Let's go back to the tenant in common arrangement. It is possible that your daughter was able to find a lender who would be willing to loan her money, and only have her sign a deed of trust. That lender would only have the right to collect against your daughter. However (and depending on the law of the state in which the property is located) if your daughter defaulted on the loan, that lender could obtain a judgment against her, and then force a sale of the property in order to collect on that legal judgment.
Let's give an example of this scenario. The house is worth $100,000, and the only loan is the home equity mortgage of $20,000 which your daughter obtained. If the lender gets a judgment against your daughter for this $20,000 (plus costs, interest and attorneys fees), the lender could force the sale of the house.
Unfortunately, under such a sale, it is doubtful that the house would sell for its full market value. Let us assume that the house ultimately sold for $90,000. You and your wife own two-thirds of the property and you would get $60,000. The remaining $30,000 would go to satisfy the lender's judgment; if there was any surplus, that would be returned to your daughter.
I recognize that this is quite complex, but here are some steps which you should take immediately:
- Retain competent local counsel in the city and state where the property is located;
- Ask the lawyer to obtain a title search to ascertain how title is currently held; also, find out if the home equity loan your daughter obtained has been recorded against the property.
- The attorney should also contact the lender --and your daughter -- demanding that they produce copies of the loan documents.
While you probably do not want to file suit -- especially against your daughter -- this material is available through legal discovery if a lawsuit is filed, and I suspect that your attorney will be able to obtain these documents without having to file suit.
However, before you take any of these steps, you should try to talk with your daughter first. Explain that you are concerned about the actions she has taken, and that if she refuses to cooperate with you, you will have to retain a lawyer. Hopefully, this will work.
For more articles by Benny Kass, please press here .
Copyright 2001 Benny Kass. Posted by Realty Times with permission.