ALL TITLEHOLDERS MUST SIGN MORTGAGES


ATG has received questions from members, closers, and lenders about who must sign a mortgage. All titleholders to a parcel of real estate must sign any mortgage. People who don't own the property can also sign the mortgage without causing a problem. ATG members and their staff and closers are responsible for making sure that any mortgage ATG insures is signed at a minimum by all the owners of the property. In a buy/sell transaction, this means that all grantees on the deed of conveyance must sign the new mortgage.


If the lender or borrowers wish to have a buyer removed from the mortgage, that buyer must also be removed from the deed. If the buyers wish to add a new party to the deed as grantee, that party must also be added to the mortgage as a mortgagor. Recently, lender practices have made this seemingly simple rule confusing. Here's an example of a common scenario:

Mr. and Mrs. Buyer sign a real estate contract agreeing to buy Mr. Seller's property. When Mr. and Mrs. Buyer apply to a lender for financing, the lender runs a credit check on each and informs them that Mrs. Buyer has better credit than Mr. Buyer and could obtain a mortgage with better terms than they could obtain if both their credit histories were included in the loan application. So Mr. and Mrs. Buyer agree that Mrs. Buyer will take out the loan alone. When issuing closing instructions to the closer, the lender states that they have a rule that the borrower on the promissory note and the mortgagor on the mortgage must match. In this case, Mrs. Buyer must sign the promissory note and mortgage. The lender supplies the closer with a mortgage completed with Mrs. Buyer as mortgagor. Mr. Seller hires an ATG agent as his attorney; the attorney writes title through ATG. When preparing for closing, Mr. Seller's attorney/ATG member drafts a deed pursuant to the terms of the contract and shows Mr. and Mrs. Buyer as the grantees. If the lender and closer do not review the commitment for title insurance and closing instructions in advance, they will not notice the discrepancy between the proposed insureds and the mortgagor. The first opportunity Mr. Seller's attorney/ATG member may have to identify and rectify this situation is at the closing table. If no one pays attention, Mr. and Mrs. Buyer could take title to the real estate with only Mrs. Buyer's signature on the mortgage. The lender then has a mortgage lien on only a one-half interest in the real estate, and if the lender tried to foreclose, it would obtain only a one-half interest in the real estate and half the sales proceeds. The ATG Mortgagee Policy's assurance that the mortgage is a valid and enforceable first lien would be inaccurate. In this situation, both the seller's attorney and the closer have responsibility for identifying and correcting this potential problem.

Mr. and Mrs. Buyer have two options for resolving this problem:

1. Remove Mr. Buyer from Title


Have Mr. Seller's attorney revise the deed before Mr. Seller signs it at closing, to make only Mrs. Buyer the grantee. Then, if Mr. and Mrs. Buyer wish for Mr. Buyer to take title, Mrs. Buyer can execute a quitclaim deed to herself and Mr. Buyer. If they choose to exercise this option, they should first consult with an attorney to discuss whether this action may trigger a due-on-sales clause in the mortgage. They should also be sure to record their quitclaim deed after Mr. Seller's deed and the mortgage have been recorded to keep the closing documents in the right order at the Recorder's Office. Closers should give buyers an idea of how long to wait before recording these types of deeds, based upon the practices in the county where the property is located.

2. Have Mr. Buyer Sign the Mortgage


Have the closer modify the mortgage to show Mr. Buyer as an additional mortgagor on the front of the mortgage and add his signature as mortgagor on the signature page. This option can be more difficult than Option 1 because the closer must first obtain approval for this change from the lender. Many lenders will not allow the closer to make these changes, instead making the changes themselves and resending the documents to the closer, a time-consuming process. Some lenders require that the debtor on the note match exactly the mortgagor on the mortgage and will not approve the change at all.


While the situation described above is a common one, it is not the only one where there may be a discrepancy between the identity of the mortgagors and the grantees that may cause a loss to the lender. Members and closers must take care to review the mortgage and deed at every closing, including refinance transactions.


There are rules to observe if the property is a homestead located in Illinois. If one spouse will take title to property, or already is in title to property, and will sign a mortgage, then you have satisfied the above requirement for the titleholder and mortgagor to match. However, you must take an extra step if the property is the spouses' homestead. In that case, the non-titleholding spouse must sign the mortgage for the purpose of waiving homestead. This is the only situation where the homestead signature is required on a mortgage. If both spouses are in title and both sign the mortgage as mortgagors, then you have satisfied the above requirements and there is no homestead signature requirement.


If the property is not homestead or if the parties are not married, then there is no homestead signature requirement. Only where one spouse is in title and plans to sign a mortgage must you require that the non-titleholding spouse sign the mortgage to waive homestead. The same requirement applies to deeds. If one spouse is in title to homestead property and signs a deed, then the non-titleholding spouse must sign the deed to waive homestead.


For more information on this topic, see our May 1999ATG Conceptarticle,Homestead Rights in Illinois and the Non-Titleholding Spouse Dilemma, on the member section of www.atgf.com.


If you have any questions, have concerns about a particular transaction, or are in a closing and unsure what to require, contact the Underwriting Department (800.252.0402, 312.372.8361, orlegal@atgf.com) for guidance. It is better to get the correct signatures the first time than to try to collect new instruments from the parties after the closing.

© ATG UB0408vol9no4

 

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