Mortgages: October 2006 Archives

I am seeking to sell my properties to my tenants. I want to create a mortgage and then sell the mortgages. Properties are undervalued in this area as they have been historically fixer-uppers. Ours are in very good condition due to major renovations. This would interfere with a regular mortgage, but temporarily holding one might eliminate this problem. Is there a way to do this or is this not possible?

The first question one would ask is why you would want to do this. The answer, easily enough, is that this way you aren't chained to lender requirements as far as the appraisal goes. When you've got a property above the neighborhood in quality, it's very hard to get an appraisal for as much as you might be able to get at top dollar. Why? Because there's nothing else in the area as good. This phenomenon has a name: Misplaced improvements. Over on my other site, I've spotlighted several of these. They are not good investments, but they are an excellent way to get a significantly better home for not much more in the way of purchase price. If you've got a beautiful 5 bedroom home with 3000 square feet and all the amenities, and nothing else in the neighborhood is over 1500 square feet, and kind of run down at that, they are still your comparables (comps). If I understand the rules correctly, the appraisal can only be a maximum of 25% over the comps. So if everything else in the neighborhood is selling for a maximum of $400,000, this one can't appraise for more than $500,000, even if it might be worth $800,000 in a neighborhood of like properties. Best property in a neighborhood: Bad investment (relative to other properties), but a good way to find a great home for your family to live in at a bargain price.

So this person wants to get around that, and has an idea as to how. Forget lender standards, he'll just make the loan himself. Well, he is permitted to do this. Willing buyer and a willing seller agree upon the price, and since a regulated lender isn't involved to force the evaluation into a LCM, or "lesser of cost or market" format, the appraisal becomes irrelevant. Buyer and seller agree upon a price, and part of the transaction is that the seller carries the note.

Now the first issue is the "due on sale" clause of most mortgages. So if you sell the property in this manner, any mortgages you have become due when you sell the property. No problem if you own it free and clear, or if you've got the cash to pay it off somewhere. A large problem if you don't. It is possible that some lenders may allow the loan to be assumed, and to put the loan you are actually holding behind their mortgage as a second trust deed. You then have justification for charging a higher rate of interest on the portion you actually hold. Cool, from the seller's point of view. Not so hot from the buyer's point of view. Remember, they've got to actually make those payments. Some lenders may also agree to modify their trust deeds so that you're still holding them, but they become "pass-through" type investments. Expect the lender to require a modification that raises the interest rate in this instance.

Now, let's ask the next question: Why would the tenant want to pay more than the area is worth? Well, I wouldn't, but it does happen. There are "Rent to Own" appliance stores everywhere, and PT Barnum underestimated by several orders of magnitude. Many people think that for some unguessable reason that they are not qualified to buy a property, or that they are less qualified than they are, and many loan officers and real estate sharks prey upon this sort of buyer. It is for this reason among many others that I counsel everybody to shop their loan around and find a good buyer's agent, who should inform you as to the issues involved and represent your interests, so that if you end up doing it, you walk in forewarned and forearmed, and have someone with a fiduciary responsibility to you and only to you that you can and should sue if they don't. Because buying under these conditions is not likely to be in the buyer's best interests in the kind of situation envisioned by this seller. The buyer ends up owning more than the property is worth according to a lender, making it difficult to refinance, even if general values have increased. I would certainly want some major concessions in price or interest rate in order to consummate the loan. Note that it isn't wrong of the seller to do this as long as you do not misrepresent the situation; everyone wants the best possible bargain and both sides are entitled to pursue that best possible bargain, and sometimes, one side does a much better job than the other.

Now, let's assume that all of the above has been done. Willing buyer, willing seller, price agreed, exchange made and now we are going forward to the seller wanting to sell the note. Can they expect to be able to sell?

The answer is that yes, the holders of the notes can sell, but in my estimation they would be better off not doing so, other factors being equal. You see, all of the other lenders out there selling their notes have a track record. Even lenders just starting out can document their underwriting standards. Furthermore, CMOs and MBSs are normally sold in lots of $50 million or more - in other words, pretty good risk diversification, as that is at least 100 different loans from 100 different borrowers in 100 different areas at a whack, and the chance of that lender taking a net loss is far less than if there are only ten or twelve. Furthermore, as most lenders can document their risk management practices, and the ones who have been at it for a while have a track record of thus and such a foreclosure rate, and thus and such a loss write-off rate, they get a price for their notes that is commensurate with the value. In most cases, pretty darned good, netting three or four percent over value after paying the security brokerages who act as go-betweens. Do this six or ten times per year, you make some pretty decent money even after paying for everything it takes to do those loans.

In the case under consideration, however, those security brokerages are going to charge about the same amount as they charge on much larger issues. After all, they have to do basically the same work, so they want the same pay. Furthermore, you're going to have some real trouble convincing prospective buyers that your risk management underwriting is acceptable, as you are missing at least one of the most basic protections for lenders that there is: the assurance that if everything goes south, they will be able to market the properties for something approximating their investment. Chances are, they are going to require that you perform an appraisal in order to sell the loan to them, and since the appraisal will come back with the same value that you were trying to ignore in the first place, and the price they will offer for the loan will reflect that, and they will offer far less for those notes than you have at risk. All of them are in the same area, and all of them have the same issues. A lot less diversification of risk than what they normally see, and with other issues as opposed to loans underwritten by regulated lenders, as well.

Now if you can sell enough in one area, the comparables will start to reflect these values, for which neighboring properties will certainly thank you, but the real point is that after a few of these sales, both in the MLS and publicly recorded in a short period of time, your appraiser can start to get value, at which point regular lenders start being willing to bite off on them, if you've got a good appraiser who can justify choosing the comparables that they did. If you're selling out a sixteen unit conversion, well, most of them should be "model matches," but if they are all single family residences of varying floor plan and not particularly close to one another, there are likely to be persistently difficult issues with appraisals.

The upshot is that in most cases, when you go to sell the note, you are going to take the same "loss" (of value), if not more, than you otherwise would have "suffered" by simply putting the property up for sale at prices that the neighborhood comparables would support, and letting the lender's chips fall where they may. Don't get me wrong; if you're in a position to hold the notes yourself it could be a great way to make some money, although you've got to watch out for foreclosure issues. But if you're planning to sell the notes, you're going to have to go through the same rigmarole that the regulated lenders do, and come out much the worse for the fact that you did not go through the same process that they would. Now just to note, this has a lot in common with a couple of scams I've read about, and Wall Street is certainly a lot sharper than I am on that score. Just because you're being honest does not mean that the flinty-eyed people who invest other people's money for a living are going to believe you're honest, especially when what you're doing looks like a known scam to them. Oh, you'll be able to sell the notes, of that I have no doubt. But I sincerely doubt that you'll be able to sell them at face value or anything like it.

Caveat Emptor

UPDATED here

In all of my conversations on mortgages with prospects, there is one subject that comes up over and over and over again, and that is the subject of payment. "But that loan over there only has a payment of $1450! The payment you are quoting is $2700! The other guy has a better loan!" Then I tiredly have to tell them about negative amortization loans and what is really going on, and why my 6% thirty year fixed rate loan is a better loan.



Usually, they don't believe me. Over 80% of people are in denial when I'm done explaining how a negative amortization loan works. They so desperately want the Negative Amortization loan to be a real payment, and they trust the guy trying to sell it to them. After all, he told them all about his little girl's soccer game, or whatever irrelevancy he used (like all the good sales books tell him to) to make him seem like a trustworthy human being. So I'll tell them about what is usually my favorite loan, the 5/1 ARM, but with an interest only rider. "Now I shopped eighty lenders for real loans and real payments that you would actually qualify for. Of all those lenders, this 6% was the best thirty year fixed rate loan for no more than one total point. But I have got this other loan over here that another lender is willing to give you. It's at 5.375%, and the payment is interest only to start with, so you'll only be writing a check for about $2015. How does that sound?" They'll say it sounds better but not as good as that other loan that the other guy is offering. Then I'll tell them the downsides, "That's okay, because this loan's rate will adjust starting in five years, and at the same time, it'll start to amortize, meaning your payments will go up. If the index stays where it is now, it will jump to 7.25% that first month after five years, and your payment will be over $3250 in that sixty-first month. Furthermore, you'd have had to pay over three points discount to get that rate. So adding $10,000 extra to your balance, and suddenly having payments $1200 per month higher, is the price you pay for cutting your payment about $650 per month. What do you think the price is for cutting your payment by $1250?"



Well, as I've covered elsewhere, the price for a negative amortization loan in these circumstances, by whatever friendly sounding name they have for it, is a real rate two percent higher than you could have gotten, a balance that increases by about $70,000 over a five year period, and a prepayment penalty for the first three years, while your real rate isn't fixed even for one month, let alone 5 years.



Selling by payment is the number one trick of unscrupulous people. You go out car shopping, and someone says you can get a $20,000 car for $608 per month, while the lot down the street says you can get a $25,000 car for $303 dollars per month, that second car sounds fantastic, right? Never mind that the loan is based upon a ten year repayment, and the interest rate is two percent higher than the three year loan the first car was based upon. Never mind that the used car dealer is actually going to give you a payment of $339 after they soak you for $3000 in bogus fees simply because you are so happy you got this wonderful car for half the price, and you're so happy with that payment that you don't watch what they're doing as closely as you normally would, because, after all, you're getting this car for about half price! Except that you aren't.



Real estate, and real estate loans, are no different. You've got to be able to make that payment - the real payment, not that minimum payment. But if someone's quoting you a payment that much lower for the same thing, there is a reason. But it is amazing the number of people who would never fall for the low payment line of patter out on the used car lot when they're talking about a car will fall for it the nice plush office in real estate that some of that money they soaked their suckers for bought. Those few I can get to own up admit to thinking of the mortgage loan as something akin to rent, which is kind of like thinking of your car payment like you would think of bus fare. Hey, here comes a bus that's seventy-five cents cheaper than the express bus right here - but this other bus is jam-packed, you can't get off until the driver's shift is over, and it's going in the wrong direction!



Payment is not price. Most people know this, but they forget to apply it. The amounts at stake in real estate are usually many times the amount at stake in any other product aimed at consumers, and the chance of banks giving away that kind of money are correspondingly lower. The great rule that applies everywhere else applies equally strongly for real estate: Sales folk who try to sell by payment are trying to get you to pay too much, and not just for the item you are purchasing, but for the loan as well. I have helped folks who first bought their houses in the seventies for forty thousand dollars, and who now have four hundred thousand dollar mortgages on the same property. They have refinanced ten or twelve times (except for the two that added a grand total of $45,000 cash out, and the loans mostly had smaller payments, and each one added $20,000 to their balance in fees, and now they need to sell the house and they are walking away with $20,000 instead of $450,000 they would have had if they had simply been more careful.



One thing to remember is that you can never go backwards in time with what you know today. What is important is not just the type of loan, but the interest rate and the cost it takes to get it. Mortgage loans are not free - all of the people whose help is required do not work for free and you - the borrower - are going to pay for every penny they make in one way or another.



Now, your greatest friend once you have own a home is inflation, particularly if you've got a fixed rate loan. You only borrowed $X. Just because they are now worth less does not increase the number of dollars you borrowed. If you have a fixed rate loan, or at least long enough to get through the period of inflation, you don't care that the interest rates on new loans are 14%. You've got this nice 6% loan locked in for as long as you care to keep it. Matter of fact, in situations like this, lenders will often offer you a much cheaper payoff if you will, in fact, pay it off. But four years of ten percent inflation and that $400,000 loan is worth about $273,000 by the standards of the day you took it out, and all the folks who were laughing at you because your monthly cost of housing went from $1650 rent to $3000 mortgage are now paying $2350 and getting none of the deductions you are, while your costs are fixed and theirs are still riding the escalator up, and if they want to step off now, that property with a $400,000 loan is now $5100 per month!



Nonetheless, choosing a loan based upon payment is financial suicide. If you cannot afford a real loan with a steady payment on the house you want, instead of a loan that messes you up for life, consider buying a less expensive house. Yes, everyone like house bling, and the more expensive of a house you buy, the more leverage works in your favor. But, as millions of folks are finding out the hard way right now, if you can't make the real payment on a real loan, you are at the mercy of the market, and the market has no mercy.



Caveat Emptor.

UPDATED here

The answer is a modified no. The same answer applies to property that is only structurally damaged, but not condemned.



That condemnation is a matter of public record. I've seen any number of them while perusing title records. It shows up kind of prominently on the title commitment, which every regulated lender is going to require.



Now it is a rule of regulated lenders that they will only lend upon the state of the property right now. If a house is condemned, you can't sell it to anyone as a house. Furthermore, with a condemned house on the property, it really isn't vacant land, either. It's less valuable than bare land, as you have an expense that vacant land does not. You have to pay for demolishing the structure and hauling away the garbage.



In the case of structurally damaged but repairable property, regulated lenders won't deal with it as a house either, although some may deal with it as if it were vacant land, less the cost of demolition and haul away. It depends upon lender policy.



The only place to get loans upon structurally unsound or condemned property is a hard money lender. They don't have the Securities and Exchange Commission to answer to, and only much smaller responsibility to the Federal Reserve Board. Many of them are individuals holding the loans in their own name. They can do most anything they want. If one of them can be convinced that the property can be marketed for a given sum, they will typically loan based upon that sum. It's all a matter of what they want to do.



Hard money lenders will loan a maximum of only up to about seventy-five percent of whatever the marketable value of the property is, and the rates are unfriendly, to say the least. However, they can choose to lend where a regulated lender can not. They can be your only option other than no loan at all. Most brokers will have at least a couple hard money lenders available to them, but your average direct lender cannot. As a final note however, before doing business with a hard money lender, you want to think long and hard and consult some experts as to whether you should - whether it's a good idea or not.



Caveat Emptor.

UPDATED here

I recently closed a mortgage loan. The loan officer told me there would be no prepayment penalty. When the documents came there was none and the loan funded and closed.

Two weeks later I got an e-mail stating some documents had been missed and we need to sign and return them. They contained a new TIL, prepayment rider and addendum.

The original TIL states there is no prepayment penalty. I have not signed these and the lender is telling me I have to because of the compliance agreement.

Is this true?

Talk about scummy behavior!

I wouldn't sign the new documents. As a matter of fact, talk to your state's department of real estate about this behavior immediately. I hope that whoever is responsible for this loses their license to do loans in your state. You also will likely want to consult an attorney, as a precaution. A lender attempting to modify the contract after funding requires your consent. This strikes me as a a good candidate for fraud, depending upon the particulars of the contracts. Explain to them that you would not have signed the documents had this been presented as a condition of your loan funding, and so to attempt to alter the contract ex post facto (after the fact) is, in some cases, grounds for a prosecution based upon fraud.

That contract is a two-sided document, freely agreed to as it originally was by both parties. The fact that the loan funded is evidence of this. I have never heard of needing to sign a pre-payment agreement as a compliance procedure after the fact - except to comply with getting that lender paid more.

If lenders could require this sort of thing, they could unilaterally change the agreement any way they want to after funding. So what if you signed a thirty year fixed rate loan at 5.5 percent and paid three points to get it? You new rate is eight percent, "for compliance"! According to everything I know about contract law - which is limited, because I'm not an attorney and you should talk to one - they have no legal grounds to demand this of you.

At the very least, it would be the case that signing these documents is what starts the clock on the the three day right of rescission. That the lender funded the loan before then is evidence of a severe error on their part, and they would have to restore you to the situation as it existed prior to you signing the original documents. If you get a sharp enough attorney and help from your state's regulators, it's possible that you might get yourself some concessions or even a settlement from the lender.

Every state's laws are different, so you need to talk to your state's department of real estate, and I do suggest consulting an attorney before you draw any lines in the sand, but this is my best understanding of the situation.

Caveat Emptor

UPDATED here

People sometimes ask how they can improve their credit if they have old collections on their credit record.



Well, the answer is NOT to simply pay them. Paying off a five year old collection can cause your credit score to drop by 100 points.



You say that makes no sense? Well, here's the logic of it: Collections are weighted by how old they are; when your last activity was. They are weighted heaviest for the first two years, then somewhat lighter from two years to five, then lighter still after five years. If you pay it off, it's still a derogatory notation, because after all, you were way past due on it. But now the date it gets marked with is TODAY, and now you've got an absolutely fresh collection on your credit record. In other words, it comes back to bite you just as hard as it ever, for another two years.



So what you do is get a promissory letter of deletion. This says that *if* you pay $X, they promise to issue a letter of deletion. You need this promise in writing. Call or write the company involved, and come to an arrangement that if you pay however many dollars they want, they will give you a deletion letter. Tell them to send it to you at your current mailing address. Don't pay until you do have the promissory letter in your possession, lest your credit suffer the hit I discussed above.



Once you have the promissory letter in your possession, then pay the bill. Include a copy with the bill to remind them. They will wait until your payment clears. They should then issue an actual letter of deletion. This is on company letterhead, has a contact name and phone number and an authorized signature. It should be short and sweet, reference the account, and say "Please delete this account."



You then send copies of that letter to the credit reporting agencies (Experian, Equifax, and TransUnion) and get your account deleted. Once the account - and the negative reference - is deleted, it's like it never existed.



Now, if the company reneges on the deletion letter, you have the legal ability to sue them. That promissory letter is a legal contract, with offer, acceptance, and consideration, for a legal purpose, etcetera. Talk to a lawyer about the details, I'm just a loan officer who's helped people with this a few times.



This entire process does take a month or two. It's not something to try when you already have a mortgage loan in process; it's something to do before you apply. Trying to do this while you've got a loan in process is expensive, because you're going to blow your lock period and need to extend it, sure as gravity. Thirty days of extension for your loan lock is approximately half a percent of your loan amount, so on a $400,000 loan, that's $2000. Most collections are a lot smaller, and you may have to resign yourself to the hit on your credit in some instances, in which case you should probably wait and have it paid via the escrow process, where the loan will be funded and recorded before paying off that old collection hits your credit score by being brought up to the present day. Otherwise, you could find your loan denied due to credit score dropping, and discover that you're not getting another one on anything like comparable terms. Maybe you are not getting another loan at all, because your score has dropped too much. Be careful, plan ahead, and take care of old collection accounts ahead of time.



Caveat Emptor

UPDATED here

When and Why does a Mortgage Company Sell your Current Loan to another Mortgage Company?

Lenders sell their loans because the lender can make an immediate premium of anywhere from 2.5 percent to four percent by selling your loan to Wall Street. Yes, this is less than the six to eight percent per year interest that most primary homeowner loans get, let alone second loans, commercial loans, etcetera. Nonetheless, they can turn the money several times per year, earning far in excess of what they could earn from the interest on your loan itself, and that's why they do it.

Selling your loan doesn't just get them four percent once. It lets that lender turn around and do another loan and make more money without getting more money in deposits. Many lenders can turn the money three to six times per year, getting them a twelve to eighteen percent bonus in addition to anything they make those few months that they hold the loan.

Now there are several philosophies on when to sell the loan. The one that seems to have the most adherents currently is the pure packaging house philosophy, where they sell it off immediately upon closing, or within a few days. Given this, they can turn the money a dozen times per year if they work at it, selling the loan for a smaller premium, but getting twelve markups per year, amounting to somewhere between twenty-four and thirty percent on the money.

The second philosophy is one that is practiced by a smaller, but still significant number of lenders, who fall more into the traditional lender's model of doing things, and that is to wait until one payment has been received. Since this eliminates a noteworthy fraction of the fraud that's out there, they get a better markup for their loans. The downside is because they have to hold it an average of two months before the first payment is received, that means they can only turn the money six times per year at most, as opposed to the twelve for the previous model of lender. So they get six markups of three percent or so, maybe close to 20 percent over a year. To this, they add maybe three percent, to cover the interest they actually received from borrowers directly. Net: maybe 22 percent. Furthermore, this leaves them stuck with those loans where the first payment is late, because nobody wants to buy those. Better from their mortgage bond buyer's point of view, not so hot for their bottom line because there is a high percentage chance of those loans becoming what is known as "non-performing." In other words, default. The bond buyers got stuck with the results of default in the first scenario, which the lender views as a much better thing than dealing with it themselves. In other words, this scenario forces the lender to actually live with the results of their riskier underwriting scenarios. They actually can sell those loans, but anybody who's paying to assume that kind of risk is going to demand a commensurately lower price for it, which is reflected in a lower bottom line. So the lenders who hold a loan until after the first payment usually have tougher underwriting than those with pure packaging house mentality.

Finally, there are still a few lenders who wait until they have three payments, giving them the best prices of all when they sell. Unfortunately, it takes about four months for them to be able to do this, so they get four percent for the loan, but can only turn the money three times per year. This actually gives them a chance to fix bill paying problems that might have afflicted the second group, but on the other hand, more people have a late payment somewhere in the first three. Nobody wants to pay a good price for loans that are not current, and a little less if it has been delinquent but is no longer, as that's a flag for possible future problems. These lenders get maybe 12 percent per year in funding markup, plus four percent or so for interest actually received from borrowers, netting maybe sixteen to seventeen percent. Needless to say, this model has largely fallen out of favor by most lenders because it doesn't put as much money into the firm's bottom line, but they still get over twice what the lender who actually holds the loan makes per year.

Now this phenomenon has been part of what has driven rates down from their rates of years previous, as lenders face increased competition from other lenders who "want in" on that twenty-four to thirty percent per year from turning the loans, and are pressured to deliver lower rates by the fact that most of their money actually comes from selling the loan, as opposed to servicing loans they do make. Many lenders actually retain servicing rights when they sell the loan, as this gives them continuing income. Indeed, may people out there whose loans have been sold multiple times are blissfully unaware of the fact, as they are still sending the check to the original servicing company.

Another thing that this has driven is the increased use of pre-payment penalties, as the entities buying the loans, which are mostly large Wall Street entities, are very attracted by the consequences of buying loans with prepayment penalties, and thus, pay more for them. If you know that you're going to get that 7% for at least three years, or get a one time stroke of three percent if you don't, you are willing to pay more for those bonds than if the people involved could just hand you your money at any time. Many times the sub-prime market will offer the same people a better rate with a prepayment penalty than the A paper market will without a pre-payment penalty. It's all well and good to save half a percent on a half million dollar mortgage, which is $2500 per year, but if you don't last the three years you are out $15,000, twice the maximum you possibly could save! Pre-payment penalties are to make the aggregated mortgages more attractive to Wall Street.

Caveat Emptor

UPDATED here

I've gotten several emails to articles recently having to do with straw buyers, and more search hits. Red flags preceded home-fraud lawsuit and Fraud case hits home seem to cover one of these weasels particularly well.



A "straw buyer" is someone whose credit is used to purchase a property and secure financing. Sometimes they cooperate willingly and sometimes they are victims of identity theft, but it's always illegal. It is also, as these two articles illustrate, hazardous to your financial health.



Person A wants to buy a property, but convinces person B to step in as a "straw buyer" to obtain terms that person A could not. Alternatively, person A steals person B's identity, and forges all of their information on the purchase and loan papers. In both cases, person B is not the person really purchasing the property, but their name is on the mortgage. In the first case, person B is fully responsible for the loan and everything else that goes on, as well as having committed FRAUD. In the second case, they've got a long hard row to hoe to convince everyone that they weren't involved, because with hundreds of thousands of dollars on the line, it is worth the lender's while to be as hard-nosed as possible. The lender does not particularly care about justice in this case; what they want is the money they loaned out to get repaid.



The closest thing to benign that happens in straw buyers is when one relative, let's call him Junior, convinces another relative, call her Mom, to use her good credit so that Junior can afford the payments on a house he really does want to live in. Please note that this is still fraud - you are deceiving the lender for the purpose of getting a better loan than you would otherwise be able to obtain. Good agents and good loan officers want no part of this, because it doesn't matter how benign the intent, the fact of the matter is that it is still fraud. The lender discovers it, or if payments get missed, that agent or loan officer is legally toast. Note that this is different from Mom buying Junior a property for Junior to live in, or helping Junior afford property Junior wants to buy. There is sometimes a thin but always bright line between legal and illegal activity, and starting to deceive people - telling anything less than the whole truth and nothing but the truth - is always a sign you have stepped over the line.



Now, once you get away from this most nearly benign straw buyer scenario, things degenerate quickly and there are many scams and frauds that can be pulled. Many of them involve appraisal fraud. Most common is that someone persuades you to allow them to apply for a loan on your behalf to buy a property for them, which has supposedly appraised for $700,000. You end up responsible for a $700,000 loan on a $400,000 property, and the people who pull this scam walk away with $300,000 (or more) free and clear.



There are also all kinds of scams involved with people that want someone else on the mortgage, but themselves on title. If you quitclaim off of title, this does not absolve you from the mortgage. In general, the only way to absolve yourself from the mortgage is for them to refinance in their own name, and since they are claiming they couldn't do this, that just isn't going to happen. It's one thing for one spouse to qualify for the mortgage on their own but legally quitclaim it themselves and their spouse, husband and wife as joint tenants with rights of survivorship. It is something else entirely to quitclaim it to Joe Blow (or Jane Blow), but allow yourself to remain on the mortgage. If Mr. or Mrs. Blow does not pay the mortgage, guess who is liable? I get hits on this site every day asking, "How do I remove myself from a mortgage?" The answer is that you don't. The lender has your signature on the dotted line that says "I agree to pay..." The only way they are going to let you off is if the people remaining qualify for the loan without you - by which I mean a refinance. Even most loan assumptions (for loans where assumption is possible and approved) are subject to recourse for at least two years, usually longer. This is one reason that for divorcing couples, it needs to be part of the dissolution agreement that the property will be sold or mortgage refinanced before the dissolution is final to protect the spouse that isn't keeping the property (they're often entitled to some cash from the equity, as well).



There are good and strong reasons why straw buyers are illegal, reasons that start at fraud and run through confidence games of all sorts, which are also fraud, albeit with a personal as opposed to corporate victim. The games that can be played on you when you cooperate with a straw buyer request start at major financial disaster, and often include felony jail time.



Caveat Emptor

UPDATED here