Can You Do a Quit Claim Deed If You Owe Money on a Mortgage?

Property Conveyance

A quit claim deed is a valid legal conveyance of your property, regardless of whether a mortgage loan remains outstanding on the property. If you properly execute and record a quit claim deed, you will transfer your title to the property to the grantee identified in the deed. However, even though the conveyance is proper, you could still face legal trouble because of the outstanding mortgage.

A mortgage loan creates a lien on your property in favor of your mortgage lender. The lien remains attached to your property until you pay off the full balance owed on the mortgage. The lien remains attached even if you transfer your property title by quit claim deed to another person. The grantee under the quit claim deed receives title subject to the mortgage lien.

A mortgage loan is a contract between you and the mortgage lender, which means the terms of a mortgage loan agreement can vary from one agreement to the next. In general, most mortgage loan documents require the borrower to remain the owner of the collateral property until he fully pays off the mortgage. Additionally, the loan documents typically state that if the borrower transfers title before paying off the mortgage loan, the mortgage lender can accelerate the balance due on the loan, requiring payment in full immediately. You essentially breach this contract provision, called a due on sale clause, if you quit claim deed your property without the mortgage lender's prior approval.

Violation of the due on sale clause triggers the mortgage lender's right to foreclose on the property. The lender will have the right to foreclose even though you are no longer the owner of the property and continue making timely mortgage payments. The lender will foreclose, causing the property to be sell to a new owner pursuant to a trustee's deed or a sheriff's deed after the foreclosure sale. So the grantee named in your quit claim deed will not remain the property owner for very long.