If a person’s name appears on the Deed of a property but not on the Mortgage against that property, there is the potential for financial loss — but not responsibility.
A Deed is a document that indicates ownership of real property.
A Mortgage secures a loan. When recorded, the mortgage creates a lien on the real property by the lender, one which can be foreclosed upon if the loan is not repaid per the terms of the loan documents.
If a person has signed a loan agreement or promissory note, he or she is obligated to repay the loan.
If a person’s name is on the deed but did not sign a loan agreement or promissory note, he or she is not directly obligated to repay the loan.
However, if there is a mortgage on the real property securing the loan, the person(s) listed on the deed may lose his or her ownership of the property in the event a foreclosure action occurs.
If the mortgage goes unpaid, a foreclosure action will result. At foreclosure, the property is sold through a judicial sale, and the proceeds are used to pay the liens and mortgages on the property. The judicial sale will transfer ownership to that third party purchaser – usually, the high bidder at the judicial sale.
The mortgage company is interested in receiving payment on the loan they made. The person making the payment may be less important than the receipt of the payment itself. But most mortgage documents don’t leave this common issue unaddressed.
Thus, it is important to check the directives of the mortgage document, as there is often language indicating that upon the death of the mortgagor (the person whose name is on the mortgage loan) that the mortgage and loan becomes immediately due and payable in full. If that is the case, if the person whose name is on the Deed wishes to retain the property, it is critical to contact the mortgage company and address the matter as soon as possible.