Being on Title and Being on the Note: It’s Not the Same
Can someone own a home and not own a home at the same time for the very same property? Well, sort of, but that takes a bit of explanation. And it all relates to who is listed as an owner. But being an owner doesn’t simply mean someone lives in the property. Legal ownership is a public record and all legally recognized owners are listed as such when a lender pulls a title report. When a lender first receives an application and begins the approval process one of the most important functions is to check out who all is listed as a legal owner.
When a preliminary title report is requested and then delivered to the lender, the title report will show all previous owners since the property was first legally recognized. For older homes, this can mean a list of several previous owners and when they first took ownership. Once the property sells to new owners, the previous owners sign what is referred to as a Quit Claim deed that transfers full ownership from the sellers to the buyers. Anyone not listed on the title report is not considered an owner and has no legal responsibilities that go along with home ownership. Such responsibilities include paying property taxes on time. All legal owners must agree to transfer ownership upon sale or the transaction can’t occur, at least in the lender’s eyes.
But someone can be listed as an owner on the title report but not be on the note. The note is the legal instrument that gives the mortgage company a legal interest in the property in the form of a lien. On the title report the mortgage company will be listed as an owner and when the owners sell, the outstanding loan balance must be satisfied or the transfer cannot take place. It’s not that uncommon for a couple to buy a house, finance it and leave one of the individuals off the mortgage application. Why would someone do that if they’re going to be on title? Because one of the buyers has something in their credit history that keeps them from getting approved by a lender. A wife can have excellent credit while the husband may have some blemishes that drags down credit scores. When lenders review a loan application for more than one person, the lender uses the lowest of the multiple scores. If the husband has a 500 credit score and the wife a 750 number, the loan would be declined due to the 500 qualifying score.
Yet as long as the wife in this example be able to afford the new mortgage payment on her own along with other joint credit obligations such as a car loan without the benefit of the husband’s income, the loan can be approved. The husband will still be on title, but won’t be on the note.