Title Change withOUT Home Sale or Refi Possible in TX???

Question

I am in a situation with a co-owner of a residential property just outside of Houston whereby my co-owner has decided she wants out of the arrangement.  We purchased the home over 3 years ago with the intention of starting a family, but my partner changed her mind.  Unfortunately, we bought the home when the rates were at all time lows, so selling or refinancing are not at all ideal at this time (I have been living in the home, she never ended up moving in, I'd prefer to stay with or without her at this point).  I was hoping I could have her sign a quitclaim deed to release her title claim, and then I'd just assume full financial responsibility from that point.  But TX law is different than what I am accustomed to, so it seems that filing that quitclaim would trigger the due on sale clause of our loan, which I do NOT want.  I am trying to come up with a slew of options to present to my ex-partner that will enable me to keep the home while relieving her of her responsibility and ownership claim, that does not disturb the financial instrument until such time that we deem economic factors make a refi more appealing.  I don't know enough about TX real estate law to be able to fully evaluate the potential moves here.  I prefer to go on referral basis, but none of the attys my loan officer or real estate agent suggested returned my calls.  The good thing is that my co-owner and I are on decent terms, and both want to devise a fair solution in this separation.  Any attys here familiar with TX law that may have some suggestions, please shoot me a DM, it would be MUCH appreciated!

Kevin Sobilo · Answer

This really has nothing to do with Texas law. The due on sale clause is part of the promissory note between you and the lender. Its up to the lender whether they want to exercise that option and its pretty rare. Texas law doesn't decide for the lender whether they do something or not. They will do what is in their best interest. That is usually to leave a loan alone as long as its being paid. Investors regularly quitclaim properties from their personal name into an LLC.

If your loan officer doesn't understand a loan assumption, get a new loan person! Seriously, they really don't sound like they know what they are doing.

Go find the documentation from your loan. Somewhere in their it will say if that loan is "assumable". If it is, then its your right to transfer the loan to someone else as long as they qualify for the loan. This provision is specifically for when a property transfer is to happen and the buyer wants to take over the loan properly in their own name. If your loan officer doesn't understand this again, go find someone else.

Jerel Ehlert · Answer

Believe it or not, divorce is probably the best route it sounds like.  Even common law marriages need divorce to separate assets (like houses).  The divorce decree can require a deed in owlety and deed of trust to secure an assumption.  It can also address debts guaranteed by the other partner.  Nothing the lender can do to trigger a due on sale clause based on a divorce decree.

Kevin Romines · Answer

Removing a borrower that is on a loan from title, but leaving the other borrower on title, is not a violation of the due on sale clause. A due on sale clause is not law, it is a provision in a contract, the contract between you the borrowers and the lender. There is no sale in this case.

You can look to see if the loan allows you to assume it. If it does, you can apply to assume the loan on your own credit, income and debt ratio. If that works out, then she will just not be on the new loan and title, only you will be. But if the loan doesn't allow an assumption, then use the correct mechanism for Texas to remove her from title. This means she no long has an ownership interest in the property, despite the fact that she will remain on the loan until it gets refinanced or paid off in some way.

What are your goals, to remove her and have her relieved of the debt, if so that requires either an assumption or a refinance. If you just want her removed from ownership, but not the loan responsibility, you  can just remove her from title via whatever mechanism Texas allows.

If she were to still be on the loan after you have done whatever you do, typically she wont have the debt counted against her debt ratio on a new mortgage after you have been paying the mortgage from you account for 12 months or more. It will still count in her debt ratio on a consumer loan, but not on a mortgage with the new lender. She would just need you to prove that you pay the mortgage from you account for 12 months or more.

I hope this helps?

Michael Smythe · Answer

@Mitrah Rasti the deed and loan are separate issues.

Your partner should be able Quit Claim her ownership to you without triggering the lender's due on sale clause - as one of the lendees (you) will still be on the deed.

You should check with your local municipality to make sure how this may impact your property taxes.

You should also check with a tax professional to see if there will be any income tax impacts of the Quit Claim.

Lastly, NONE of this will remove your partner's name from the loan. The only realistic way to do this is a refinance.

Richard Chae · Answer

not a lawyer but I was under the impression that Texas does not recognize quick claim deeds, only warranty deeds, I'd look more into that. as far as the due on sale clause, everyone i've spoken and have done AMPS, sub-to, or title transfers, only one person has ever have a due on sale clause initiated cause in retrospect banks don't care how they get their money as long as they do.

Phil Salazar · Answer

Can other seasoned investors also weigh in on this?  This is an idea and a strategy that I have used in other states.  I'm not well versed in the laws of Texas tho'.

Have you looked into Transferring ownership into a Land Trust?  The loan remains untouched until you sell or refinance.  The ownership shifts from privately owned to entity owned and Beneficiaries of the Trust remains anonymous and not public record which will not trigger the due on sale clause according to the Garn-St.Germain Act of 1982.  A good real estate attorney should be able to write that up for you.

Trey Belmore · Answer

Does your partner want equity out of the deal? What interest rate do you have? You could look at refinancing her off the mortgage and part of the deal is she contributes her portion of the equity towards buying the rate down as low as possible. If she wanted cash in addition to refinancing the current loan balance you could also look at getting a HELOC on the property if you have sufficient equity to pay her back her portion of the equity owed. Shoot me a message if you would like to discuss further.

Guy Gimenez · Answer

@Mitrah Rasti

1.  You'll be well served to consider the opinions of those who are familiar with Texas law. Every state has different regulations when it comes to property transfers.

2.  Do not use a quitclaim in Texas. It will create problems for both of you in the future.

3.  Your former partner will remain liable on the loan until the loan is paid off or refinanced. Some loans "may" be assumable but they will still require the party to prove their ability to repay.

4.  You're on title and the loan too so your former partner is merely transferring her undivided interest to you...D.O.S. should not be an issue although your former partner is still liable even if she transfers her titled interest to you.

5.  Few attorneys will provide free legal advice online. They'll want to do it one on one with a phone call. Do yourself a favor and put together a solid package of documents (title, copy of deed, deed of trust, note, etc) and pay for a couple of hours of consultation with a real estate attorney BEFORE you do anything.

6.  There will also be tax consequences associated with a transfer as well.

Jay Thomas · Answer

Concerning your mention of a quitclaim deed potentially triggering the "due-on-sale clause" and the resulting need to refinance at higher rates, exploring alternative options is key. If you aim to stay in the house, negotiating a cash-out buyout with your co-owner could be a viable route. This involves compensating them for their share of the property's equity, allowing them to exit ownership and relieving you of their financial responsibility. Another option is a revised Tenant-in-Common agreement, outlining property management, expense sharing, and a potential buy-out provision in the future under specific conditions. However, given the complexities, it's crucial to seek guidance from a real estate attorney familiar with Texas law. They can assess existing agreements, advise on legal implications, and assist in drafting or reviewing necessary documents. Consider reaching out to the Texas Bar Association, local law schools, or your network for attorney recommendations.

Jay Hurst · Answer

If it is a conventional loan, then it is not assumable.

Title Change withOUT Home Sale or Refi Possible in TX???

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