Can you quit claim a house to avoid foreclosure?

Answer 1

One common misconception that homeowners can have during a foreclosure situation is that they can somehow transfer ownership of a property and that this will stop the foreclosure. Nothing could be further from the truth, and simply signing over the deed to the house to a third party will put the owners in a much more vulnerable situation than when their own names were on the title. Using a quitclaim deed or other transfer will also do nothing to make the bank end its lawsuit to take the home.

Transferring ownership of a house in foreclosure does not relieve the original borrowers of their obligation and responsibility to pay the mortgage. When they purchased the house, they promised to pay back to the bank a set amount of money at a certain interest rate. The owners may be able to transfer ownership of the house at a later date, but their original promise to pay the bank will not be altered.

There is also a danger that transferring the title into someone else's name will activate a part of the mortgage called the "Due on Sale" clause. This means that, if the homeowners transfer ownership at any time before they have paid off the mortgage in full, the entire remaining amount of the loan will be due immediately. Because most deed documents state the consideration paid for the property, banks view this as a sale of the house, even if it is only for a nominal amount like $10. It will activate the Due on Sale clause and the homeowners will still have to find a way to pay back the loan.

It is also important that homeowners be aware of the fact that many foreclosure scam artists rely on such transfers in order to steal homes from desperate families. They sell foreclosure victims on being able to stop the process just by transferring ownership of the house to a third party, into a land trust, or other "creative" entity. At that point, the homeowners typically agree to paying the scammers rent, all the while ignorant of the fact that the bank is continuing the foreclosure process. The homeowners are eventually evicted with severely damaged credit, while the bank takes the house, and the foreclosure scam steals money and gets away with no damage to their own credit.

Transferring ownership of a house while facing foreclosure is almost never a good idea unless a sale or refinance of the property is also taking place. The defaulted mortgage must be paid off in full or at an agreed price in order for the foreclosure to be ended. If the homeowners are simply executing a quitclaim deed in an effort to save the house from foreclosure, they will quickly realize that this does nothing to affect the original mortgage, and will only leave them in a potentially much worse situation.

If title is transferred out of the homeowners' names and the mortgage is not paid off, there is a good chance that the situation will go from bad to worse. They will no longer have control over the property, and the Due on Sale clause may push up the time frame in which they need to pay off the mortgage. In any event, though, homeowners need to keep their eyes open for potential scams and make sure they understand that transferring title does not stop foreclosure unless the defaulted mortgage is also paid off.