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How is a Mortgage Handled when a Quitclaim Deed is Used to Transfer Property Ownership?

Property can be transferred by way of Quitclaim Deed to another person, regardless of whether one or more mortgages exist on the property.  However, there are several issues of which the both the Grantor (the person selling or transferring the property) and the Grantee (the buyer or person taking title to the property) must be aware.

Mortgages or liens on a property that is transferred do not “disappear” when the property is sold or transferred by the Grantor.  The Grantee takes the property subject to the mortgage –- that is, the real property continues to be encumbered or subject to the mortgage and the Grantee is responsible for paying the loan or obligation that forms the basis for the mortgage before the lender is required to remove the lien.

The lender is not required to remove a lien simply because the property is transferred.  Rather, the mortgage runs with the land and buildings continuing to act as security for the mortgage even after the transfer.

Also, most residential and commercial loans from banks contain a “Due on Transfer” clause. This clause states that when the real property that is acting as security for the loan (i.e. there is a mortgage on the property to ensure payment of the loan) is transferred to a third party, the transfer triggers the clause and the entire amount of the loan is accelerated, meaning the entire balance is immediately due and payable upon the transfer.

While this is not to suggest that the grantee must or should voluntarily pay the lender the balance of the loan amount prior to transfer, the grantee must be aware that the lender may call the loan due and demand full payment on the balance of the loan immediately upon learning of a transfer. Further, if full payment is not made when demanded, the lender has the right to initiate foreclosure proceedings to sell the mortgaged property and use the proceeds from the sale to pay off the loan. So it is important to be prepared to provide the money to the mortgage company if necessary, or to make arrangements with the mortgage company prior initiating a Quitclaim Deed filing.

Details can be found on Standard Legal’s do-it-yourself Quitclaim Deed legal forms software here.

Quitclaim and Warranty Deed Questions  ·  February 25th, 2009

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