2 Primary loophole?

Question

Without a divorce, legal separation agreement, or child support order etc, a husband will buy the wife off the mortgage, have her sign a quitclaim deed on the property. She now has no ownership interest, is not listed on the mortgage, title, or deed. Is she legally able to buy another property as her primary residence even though she is still married? Under what grounds could she legally be denied this mortgage? I feel like more people would do this if it was this easy.

Chris Mason · Answer

Most people do get away with it the first time.

It's on subsequent mortgages that you get jammed up. The Deed of Trust where you promised to live there for a year is public record. And then the underwriter will see zero indication in the loan file, your financial history, the address your W2s get mailed to, bank statements, addresses showing on credit report, etc, that you did what you promised to do. At which point the "fool me once, shame on me..." logic kicks in and future mortgage loans will be denied regardless of FICO, DTI, down payment, or anything else.

Those are the obvious ways people get caught. I'm not going to list the less obvious ways because this is not "Mortgage Fraud 101."

Joe Splitrock · Answer

@Jordan Jones I am assuming in your situation that the wife doesn't plan to occupy the newly purchased property? The answer is really simple, if you don't occupy a property it is not your primary residence. If you are asking if she could lie and commit fraud, then that would be illegal.

Some married people do purchase properties under a single owner as a way to avoid the caps on quantities of conventional mortgages you can hold. That is legal, but you must claim accurately if it is going to be owner occupied. Non-owner occupied is subject to higher interest rates and often larger down payments.

Please keep in mind that if you are lying on a contract for personal financial gain, that is fraud which is a crime.

Wayne Brooks · Answer

First, you can't "buy her off the mortgage/note".  You can buy her "ownership interest", but only the lender can release her from the note/mortgage.

Chris Mason · Answer

It depends. I do these deals not infrequently, and here's the crux of it.

Discrimination based on marital status alone is unlawful in 2016. This is not Louisiana in the 1980s when a married woman had to get her husband's permission to do anything with any real estate she owns.

At the closing table, she is going to sign a promise stating that she intends to move in within 60 days, and live there as her primary residence for a year.

If she lies when she signs that statement, she is committing mortgage fraud. Which is illegal.

If she genuinely intends to live up to her promise, she is not doing anything wrong or breaking the law. She's doing what she is supposed to do. I, and many others like me, are perfectly happy to work with someone whose situation "looks like" but is not mortgage fraud, to make things work -- so please don't be scared of that part.

Ultimately, the "is she legally able to..." question isn't your or my call to make. It's a judgement call.

We have a title for the persons who make those judgement calls. We call them judges, and if you're standing before one, you'd better damn well have your ducks all lined up in a row.

(I am not a lawyer in your state, this is not legal advice, talk to a lawyer, bla bla bla)

Don Konipol · Answer

Incorrect, she is still a borrower and guarantor on the mortgage. Further, in community property states she still has an interest in the property. If she resides in the property it is her primary residence. If she purchases another property as her primary residence and does not use it as her primary residence she has committed mortgage fraud. Even if none of the above applied, only her income would be considered for the purchase AND her continuing obligation under the existing mortgage would also be considered.

Sorry, you did not discover a free lunch".

Jordan Jones · Answer

exactly, my concern is that this hypothetically is being done to avoid the higher rate as an investment or secondary home. Once they sign the occupancy affidavit, this could be mortgage fraud, but also it is difficult to follow-up on this and you don't really want to force a foreclosure if that is the case

Joe Splitrock · Answer

Your original post asked if it could legally be done and the answer is no, not if they are lying for financial gain which would be mortgage fraud. If you are asking if they are likely to get caught, probably not. There is no enforcement group out checking things like this. People commit fraud all the time. Taxes is a common place that people commit fraud every year. Very often they don't get caught. People drink and drive all the time and don't get caught. This doesn't mean these things are right or legal.

Your post implies this is not a hypothetical situation and that it is actually a real-world situation you are involved with. If you are aware of fraudulent activity you should report it.

Jeff F. · Answer

This can be done, As I've just recently done this.

What happened was that while I'm still legally married, I was able to move and obtain a loan on my own, while still being listed on the other note. This greatly affected my DTI ratio and made it far closer than it needed to be, but I did have to say that I was going to move in there quickly and stay there for a year.

2 Primary loophole?

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