Mortgage, Note, Deed, & Title

My mother conveyed her house to me 14 years ago and then took out a mortgage without my knowledge. Do I have liability?

My mother put the deed to her home in my name 14 years ago. Her name was not on it. She recently passed away. I discovered that a couple of years ago one of the major banks allowed her to borrow over $100K against the home without my knowledge or consent. They are now trying to get the money from me. I am in the process of selling the home but don't have a clear title because of this. I am told that I can still sell it and set up an escrow account in the event I have to pay this money back to the bank. But I don't know if an escrow account would clear the title for sale. Do you have any suggestions?

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Updated: Sep 18, 2014

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Highlights

  • A title is a bundle of rights to a property.
  • A deed conveys the rights from grantor to grantee.
  • A defective deed does not convey the title to the grantee.

Your complex question includes several terms that need to be defined, before I can address the issues your questions raise.

Mortgage, Note, Deed & Title

A mortgage consists of two documents: a note (or bond); and the mortgage itself.

The note is the buyer’s personal promise to make the repayments. If there is a foreclosure against the property and the foreclosure sale does not yield enough to cover the outstanding mortgage debt, the note serves as the basis for a deficiency judgment against the borrower for the balance still due.

The mortgage itself is a document that gives the lender the right to have the property sold to repay the loan if the borrower defaults. Since the mortgage in effect gives the mortgagee (the lender) an interest in the land, the mortgage is recorded at the county recorder’s office.

A deed is the document that passes the title from the grantor to the grantee. There are two basic types of deeds. A quitclaim deed passes whatever title or rights the grantor has in the property to the grantee. A warrantee deed contains promises made by the grantor about the title or rights conveyed. A deed must contain specific formalities, including the legal description of the property, and must be executed (signed in front of a notary public in most states), and delivered to the grantee.

A title is the bundle of legally recognizable rights the owner has in real property. In a word, the title is the ownership of the property. A clear title means the title is free of any encumbrances or claims on the property. A title with more than one owner is called concurrent ownership.

Your Question

You mentioned your mother put the deed to her home in your name many years ago; her name was not on "it;" and she subsequently took out a mortgage you discovered when she passed away. The facts you shared are haunting because I am sure I answered a similar exam question while I attended law school.

My first and last observation will be for you to take all of your documents relating to the deed, title, and mortgage to an attorney in your state who has experience in property law. There are facts you did not share in your message that may change the analysis of your question significantly.

My guess — note that word choice — is your mother asked an attorney to draft a deed to convey the property to you 14 years ago. Allow me to digress for a moment to plumb the depths of my memory regarding deeds.

For a deed to be effective, several formalities must take place. First, the deed must show clear intent for the grantor to convey the property to the grantee. Second, the grantor must execute (sign) the deed. Third, the grantor must convey the deed to the grantee. Finally, in some states, the deed must be recorded. If any one of these steps is skipped or defective, the deed fails and the title is not transferred from the grantor to the grantee.

My guess — again there is that word — your mother did not complete all of the formalities to grant you title in the property. Had she done so, it is likely the bank would have discovered she did not have title to the property when it conducted a title search before selling her the mortgage. It is very unlikely the bank would have given her a mortgage without her name appearing on the property’s title. If your mother’s name was on the title, then your mother’s property is encumbered with the mortgage. The property will be distributed according to her will or your state’s laws.

Alternatively, let us assume for the sake of argument she did convey the title to you 14 years ago, and that the bank made an oversight and gave your mother a mortgage without conducting a title search. In that event, it is likely a court will find the bank gave your mother an unsecured loan. If that is what a court finds, then your mother’s estate has liability for the mortgage, and not you.

Quick Tip

Looking for either a joint mortgage or a loan with one spouse on the application, start with one of Bills.com’s mortgage partners.

As I mentioned, you need much more help than I can offer. Find an attorney, and ask him or her to review all of your documents. Please send me a message letting me know when your case is resolved, and how.

I hope the information I provided helps you Find. Learn. Save.

Best,

Bill

Bills.com

4 Comments

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  • CS
    Feb, 2012
    Chesed
    Hi, I have a question. My spouse and I are in the closing process on our first house, but my name is not on the mortgage loan. (I am told it is because of my credit, but I have paid off my college loan several years ago that defaulted on) My in laws will be co-signing/co-borrowing for us. I am not sure what part I have in the loan, but I will be signing something at closing. In the event that my spouse dies >before< the loan is paid off and our in laws are still on the loan, who will the house go to? I have the same question if my spouse dies >after< the loan is paid off, who will the house go to? Also, if we happen to refinance after a year of building our credit,(but since we plan to pay it off early my spouse doesn't have any interest in refinancing to take our in laws off) and my name is still not on the loan after refinancing, who will the house go to, in the event that my spouse dies if we still owe on the refinanced loan? Or if it is paid off and my name is still not on the refinanced loan will it go to me if my spouse dies or will the loaner somehow take it away from me? Just to clear things up, my spouse drives for a living-which makes me worry more than the average spouse-I do not plan on my spouse dying.
    0 Votes

    • BA
      Feb, 2012
      Bill
      I wish you and your spouse long and prosperous lives. As the situation stands, you have no rights on the house. However, being a co-borrower on a loan does not grant one automatic rights on the loan. In the case of death property will be divided according to a will, if it exists, and state law. I recommend that you speak with your spouse about setting up a will with an estate lawyer.
      0 Votes

  • GW
    Mar, 2011
    Gary
    My mother, my wife, and I brought a house. My wife and I were the primary holders on the loan, and we let my mom refinance and now she is the primary holder. My wife and I hold the deed still. My mom has PMI just in case she dies the bank is cover. What will happen if she dies? Will we lose the house?
    1 Votes

    • BA
      Mar, 2011
      Bill
      Consult with a lawyer in your state who has experience in wills, trusts, and estate planning about your situation.

      In my opinion, you are pursuing the wrong tactic in relying on PMI to handle the mortgage if your mother dies. PMI protects the lender, and not the borrower. If your mother would die tomorrow, PMI would not pay off the mortgage and allow you to get the house at no cost.PMI would only kick in if your mother becomes delinquent on the mortgage payments and the house goes into foreclosure. The insurance company would have a claim against your mother's estate.

      A much smarter tactic is to cancel the PMI (if you have more than 20% equity in the property) and use that money to buy term life insurance for each owner in an amount equal to or greater than the balance of the loan. If one of you dies, then the other two will have a lump-sum to retire the mortgage. Each of you should also have a will where the disposition of your assets is discussed. Consider placing the house in a living trust, which will have significant tax advantages for the heirs should one of the owners dies. As I mentioned, an experienced wills, trusts, and estates lawyer is your best resource to help you plan for what most of us avoid thinking about.
      0 Votes