Title Tip – Spouse MUST sign on mortgage

All fee owners of a property must sign on a mortgage – whether for a purchase or for a refinance.  This is fairly clear and something most people are comfortable with.

However, we often encounter situations where a piece of property is owned by an individual (who happens to be married) – and they are surprised to find that their spouse must also sign the mortgage.  (The spouse might not even be a borrower, but they still must sign the mortgage.)

The reason for this is:  by taking out a loan on an existing property, an owner could effectively strip away any equity that existed.  For example, take a couple who owned a lake cabin free of any debt.  For tax or estate purposes, the cabin could be in the name of one party only.  If that party decided to take out a mortgage for the full value of the lake cabin, they have effectively taken away all of the equity in a property.  Then, if they left town with that money ……..

One exception to the above:  If a mortgage is a “purchase money mortgage”, a spouse does not have to sign the mortgage.  With a purchase money mortgage, all of the funds from the mortgage go to purchase the property.  Thus, no equity stripping can result.

So, be aware of the above if your customer is applying for a loan – either as a refinance to an existing property or as a purchase of a new property.

Disclaimer – this information is NOT legal or financial advice, and should not be used as a substitute for the same.  It is offered for informational purposes only.  Many different factors can influence the proper course of action for a particular situation.  Please seek the advice of a qualified professional for guidance with your specific transaction.