Getting Your Name Off the Loan on Jointly-Owned Property
There are countless reasons to co-sign on a mortgage with a romantic partner, friend, family member, or business partner when buying a property together. The ideas of co-ownership or helping someone qualify for a mortgage may seem like a good idea at first, but can lead to issues down the road if you decide to remove yourself from the mortgage or want to end the co-ownership relationship. The relationship may deteriorate over time or you may be worried about your co-borrower’s financial means to pay off the loan. You may want to invest in your own property, but can’t get a loan for a second property since you’re already liable for the debt on the first property. You may want to access the equity in the home, but your co-borrower refuses to sell. Your credit report might show defaults or your credit score is lower than it would otherwise be because your co-borrower won’t timely pay the mortgage.
It makes sense that your co-borrow wants you to remain on the loan, but what’s in it for you? After all, you are receiving no benefit from this property, but your co-borrower is using your equity to receive a discount mortgage. Having you on the mortgage gives lenders the security of knowing that there is another person liable for the entire amount of the loan in the event your co-borrower defaults on the loan. Removing you from the mortgage puts the burden of the entire loan on your co-borrower, something that neither the bank nor your co-borrower will be thrilled about.
Whatever your reasoning, ending a lopsided co-borrower, co-ownership relationship by removing yourself from a joint mortgage is possible through various means.
1) Ask the Bank to Remove You from the Mortgage
The first way to remove yourself from a mortgage is to ask your lender to remove you from the loan. As simple as this sounds, it is more difficult in practice. A typical mortgage between two borrowers will place joint and several responsibility on both borrowers, meaning both are liable for the entire amount of the loan. For example, on a $400,000 loan, both borrowers are each liable for $400,000. Liability of the loan is not split into $200,000 per person. If your co-borrower can’t pay, then you are responsible for the entire $400,000 loan. Lenders are understandably hesitant to remove a borrower from a mortgage as there is no benefit to them and it drastically heightens their liability. Your co-borrower’s financial history may prevent you from removing yourself from the loan just by asking, but it is still worth a try.
Banks may also be hesitant to remove a borrower from a loan because of the mortgage pool in which the loan is placed. Mortgage pools consist of groups of mortgages with similar characteristics, like mortgage terms, interest rate, and maturity date, into a mortgage backed security. Creating unnecessary complications for mortgage pools is another reason a bank may deny removing a borrower.
2) Refinance the Mortgage on the Property
The next solution to removing oneself from a joint mortgage loan is to refinance the mortgage under a single owner-borrower. Refinancing a mortgage allows a co-mortgage borrower to apply for a new home loan to pay off an existing mortgage. Usually, this will be a cash out refinance to pay out the co-owner who is selling their interest in the property to their fellow co-owner. By removing yourself from the mortgage via a refinancing, you are also removing yourself from any joint and several liability for the loan and will therefore not be liable for repayment of this loan.
However, your co-borrower must have acceptable credit, debt to income ratio, equity, and income as well as your consent in order to refinance. This is process is similar to that of the original loan approval process. Again, the new lender may be leery of a refinance only by a co-borrower, especially if the remaining co-borrow may not be able to make payments on the loan.
3) Agree on a Sale of the Jointly Owned Property
If your bank refuses to remove your name from the mortgage and your co-borrower doesn’t qualify for refinancing, there is the option to sell the property. Selling the property in an amicable way for co-borrowers / co-owners to end a joint mortgage relationship while maintaining their equity in the property. A wise co-borrower will understand that selling a property that they cannot afford without you on the mortgage is better for all parties in the long run, and even allows them to move on and purchase a property that they can afford on their own.
4) Partition the Property
Finally, after all other options have been exhausted and you just want your name off this mortgage, there is one last option to finally remove yourself from the mortgage: a partition action. A partition action is a court order forcing the sale or division of shared property. A partition by sale would force the shared property to be sold, thereby allowing you to unlock the full value of your share of the home. Your co-owner would also receive their fair share of the equity.
Allowing a co-borrower to remain in a home that he or she cannot afford while your name remains on the mortgage isn’t benefitting either side. Your co-borrower may be clinging to the property by refusing to let you off the mortgage, but the reality is that the home is well beyond his or her means. Hence, the reason a lender won’t give them a new mortgage on the property without another borrower. Living in a home that one cannot afford causes undue financial stress, especially when it’s possible to sell the home and move somewhere that fits this person’s income range.
Furthermore, depending on how much time has passed and the condition of the real estate, the property value may have gone up significantly. You are entitled to use or get the value from your portion of the real estate. A partition action allows you to do just this, even if your co-borrower insists on keeping the property. In fact, your co-borrower has the right to purchase the property from the partition sale. This allows you to get off the mortgage and give up any interest in the property while allowing your co-owner to remain the property.
If you are ready to end this one-way relationship for good, filing a partition action is the only way to forcefully remove yourself from a mortgage. Indeed, California law allows for a forced sale of a property through a partition action despite the roadblocks your co-borrower may try to put up.
Warning: A Quitclaim Deed Does NOT Take Your Name Off the Mortgage
Note that signing a quitclaim deed surrendering your interest in the property does NOT remove you from the mortgage. You will still be responsible for the entire debt if your co-borrower fails to make payments, resulting in a notice of default or notice of sale on the trust deed, commonly referred to as a mortgage. Furthermore, you have the right to demand money from the property you co-own, which is why the bank made you co-sign on the mortgage. Making things even worse, if you quitclaim the property, you may have no right to file a partition action whereby you can force your co-owner/co-borrower to remove you from the mortgage.
Consult with an Experienced Partition Attorney in California
If this problem was going to resolve itself, you wouldn’t be reading this. Removing yourself from a mortgage loan with an uncooperative co-borrower though a partition action is the best possible solution to remove your liability and get out of a one-sided co-owner relationship. A knowledgeable partition attorney can help you end this joint mortgage once and for all. The attorneys at Talkov Law have extensive experience litigating partition cases. To schedule a free, 15 minute consultation with one of the experienced partition attorneys at Talkov Law, contact us online or by phone at (844) 4-TALKOV (825568).