Updated: Jun 22, 2021
A house deed is the legal document that transfers ownership of the property from the seller to the buyer. In short, the deed is the document used to determine who owns the property. The deed itself is the legal document that proves ownership interest. If you hold title (i.e. you are on the property deed), it means you own an interest in a property.
Ownership Interest Can Lead to Creditor Claims
Whoever is in title to the property also subjects the property to creditor claims. A creditor can put a lien against anyone who has ownership interest in the property. The lien gives the creditor an interest in your property so that it can get paid for the debt you owe. If you sell the property, the creditor will be paid first before you receive any proceeds from the sale. And in some cases, the lien gives the creditor the right to force a sale of your property in order to get paid.
For example, let's say Susie and Sally are in title together with 50/50 interest in the property. Then let's assume Susie owes child support and has not paid in months whereby leading to a child support lien being filed against the property. Meanwhile, Sally wants to take advantage of low interest rates and wants to refinance the mortgage on the property. Sally convinces Susie it is time to refinance and when the title search is conducted, the examiner discovers a child support lien filed against the property due to Susie's debts. Before the refinance can be completed and closed, Susie must pay the child support lien. The child support lien will stay on the property until Susie pays the support she owes, she refinances or sells and pays the support out of any surplus funds over and above the previous mortgage owed, or until the recipient forces a lien sale - whichever happens first.
I give the above example to explain the importance of putting someone in title with you. If someone is in title to the property, the property becomes subject to any possibly liens that can be filed against said party. This is one of the many reasons to think long and hard before putting numerous people in title to a property.
Ownership Interest Can Bar the Sale or Refinance of the Property
Depending how interest is held (ie. what type of deed the property is held in), in order to sell or refinance a property, everyone in title to the property must agree to the sale or refinance and be present to sign at the closing. If for any reason one party does not agree or does not want to participate in the sale or refinance, the transaction is barred. Simply put, everyone who is in title must agree to the sale or refinance the property.
Let's go back to the Susie and Sally example. Let's assume Sally wants to refinance but Susie won't agree to it. Since Susie and Sally are co-owners in the property, Sally cannot move forward with the refinance unless Sally agrees to it. If you share property ownership with someone else, it is highly unlikely that a mortgage or home equity loan can be taken out without the consent of all owners.
The requirement that everyone with ownership interest must agree to the refinance is because judgment creditors cannot force the sale of the property unless the judgment is against both owners. Therefore, a mortgage lender will not make a loan to one of the owners unless both owners sign the mortgage documents.
Spouses are Commonly in Title Together
It is worth noting that it is super common to have spouses in title to property together. Spouses tend to be in title together largely due to estate planning needs. Being in title as tenants in common with right of survivorship allows the property to transfer without being subject to probate. From an estate planning perspective, this is one of the easiest methods to transfer ownership in the event that one of the spouses pass before the other. However, it is definitely not the only way to transfer title without being subject to probate. It is just the most commonly used method.
It is highly advised to seek counsel or attorney advice before adding someone to title. Even if you are looking to add your spouse to title for estate planning needs, it is worth consulting counsel to ensure that it is the best plan of action for your circumstances. If the relationship - whether it by spouse, relative, business partner - is solid, sharing ownership interest may not cause much conflict. However, keep in mind that if one party is not always financially responsible, the shared property could become subject to a lien.
There truly is no "one size fits all" solution on who should be in title to the property. That is why it is always in your best interest to consult counsel before making any decisions regarding ownership interest. If you or someone you care about find yourself in a situation where you are looking to possibly add someone to title, please feel free to reach out. The Rose Law Firm would be honored to help you figure out the best plan to protect your assets.