Thursday, March 3, 2011

The Risks of Refinancing Your Home With Your Spouse or Partner

WARNING!  Joining in the refinancing of a home previously owned by your spouse or significant other does not guarantee that you actually “own” part of the house.


Signing the Promissory Note DOES mean that you are legally responsible to pay the mortgage on the property. However, it does NOT mean that the property is automatically in your name, or that if your spouse dies you will automatically inherit all or part of the property.

Here is a specific example that could contain a nasty surprise waiting somewhere down the line:


Husband has three adult children by a previous marriage. He is divorced from Wife #1, and he owns his home, which is in his own name.   He then marries Wife #2.  

Husband and Wife #2 evaluate their joint financial situation.  They decide that it would be financially helpful to them if they were to refinance the home that they live in. They apply for, and are granted a new mortgage.  It is at a better interest rate, especially since Wife #2 is a co-borrower. Husband and Wife #2 both sign the refinance agreement, but there is no deed filed in the county records which gives part ownership of the home to Wife #2.

The couple goes along happily with their life.   Then, Husband dies suddenly, and without a will. 

Under Texas law, his prior children inherit the ownership of the home, since the deed is in his name and it is his separate property. 


Wife #2 does have a “life estate”, which means that she is allowed to live in the same home that her stepchildren now own. Under the paperwork she signed with the mortgage company, she is still obligated to pay the mortgage, but the home is not in her name and she cannot pass the home or any portion of it on to her own descendants. If she chooses to just walk away from the home, she is leaving behind the money that she and her deceased husband have already put into it, and her stepchildren don’t have to compensate her.


This is a sobering set of facts, but unfortunately it is very common.

It is very unlikely that the Husband in the example wanted this to happen.   It is more likely that he wanted Wife #2 to own 100% of the house upon his death. 


The situation could have been avoided in two ways. First of all, a properly drafted and filed deed would have protected Wife #2, because it would have given her immediate rights and ownership in the property.  It would have legally given her her own portion, regardless of whether the Husband lived or died. 

Secondly, the Husband could have had a valid will, which would have spelled out exactly what was to be done with his 50% upon his death. 


It is important for everyone to understand all of the consequences of refinancing property. It is especially when dealing with second marriages, stepfamily issues, and non-traditional families. Couples who are in same-sex partnerships and cannot legally marry each other and couples who are unsure of their "common law" status or choose not to marry can be especially vulnerable to these problems.  A timely legal consult can avoid serious problems and unpleasant surprises later on.


Kalish Law Office has been representing clients in family law and real estate law since 1984.  Located in The Woodlands, north of Houston,

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