Can a Co-signer Transfer a Deed Without Refinancing?

Co-signing a Loan

Think carefully before co-signing a loan for someone is the prudent advice offered by the Federal Trade Commission (FTC). When you co-sign on a mortgage loan, you are taking on just as much liability for the debt as the primary borrower. Since the borrower, for whatever reason, could not qualify for the loan based on his own credit, you are being asked to guarantee the repayment of the loan. As a co-signer, you are accountable for the mortgage, but retain no ownership rights or potential profits from the property, unless the borrower agrees to add you to the title deed (right of ownership).

Depending on the state where the property is located, the terms deed of trust and mortgage may be used interchangeably, although a number of states rarely use mortgages as security instruments for home loans. A home can be secured by a mortgage, a two-party transaction involving the borrower and the lender, whereby the lender places a lien (legal claim) on the home until the loan is paid in full. In contrast, a deed of trust is a three-party transaction involving the borrower, the lender and a third party known as the trustee. The trustee holds the security instrument (deed of trust) for the lender until the loan is paid in full. Many lenders require a co-signer to be named on the title deed of the property before approving a mortgage.

Generally, the mortgage loan must be refinanced into the primary borrower’s name only, before the co-signer can transfer the title deed. Since the borrower could not qualify on his own for the original mortgage, the lender will need to know he can qualify for a refinance without the benefit of a co-signer. Transferring title to a property does not release you, as a co-signer, from accountability for the outstanding debt on the original loan. If you transfer all ownership interests you have in the property without the borrower refinancing the mortgage, you are still on the hook for the remaining loan balance if the borrower defaults.

As a co-signer, you can transfer a deed solely to the primary borrower, using a quitclaim deed. A quitclaim deed transfers whatever ownership rights you have in the property. Quitclaim deeds are commonly used by divorcing couples or family members to transfer real property from one person to the other. Again, a quitclaim deed will not relieve your financial obligation if you co-signed on the primary borrower’s mortgage loan.