Can a Quit Claim Stop Foreclosure?

Avoiding home foreclosure can be tricky, especially if a lender has already started the process. Although stopping it is always possible by paying the bank the entire balance of the loan attached to the property, we know that's rarely possible for people facing foreclosure.
Many people, as a viable option, use a quit claim deed to stop the foreclosure process. While these deeds do serve their purposes, they should be used with extreme caution when associated with properties in foreclosure.

Identification

A quit claim deed is a deed that transfers part or all interest in piece of real estate from one person to another. Preparing and filing such a deed is simple and is, almost always, legally binding. This means once a quit claim deed is filed, the new owner-of- record immediately takes ownership of the home. Once that is done, the new owner, in most cases, has the right to do with the property what she wishes, including ask any existing residents to vacate.

Misconceptions

Like any legal instrument, quit claim deeds are employed in various situations. For example, it is common for an elderly person to quit claim their home to a relative to avoid having specific liens placed on it during times of a medical crisis. Transferring the property rights to another person makes it impossible for hospitals, nursing homes and courts to seize the home due to unpaid bills. Quit claim deeds are also used by parents wishing to give their children homes as gifts.

A quit claim deed is also often used when one spouse surrenders ownership of a marital home as part of a divorce settlement.
If there is an existing loan on a home when it's transferred via a quit claim deed and the person transferring his or her rights is responsible for paying back the home loan, he will still be responsible for doing so, until he is legally removed from such responsibility. This is usually done when the new owner refinances the property or sells it and pockets the profits. So, generally speaking, although a quit claim deed relinquishes an individual's legal rights to a property, it does not relinquish their obligation to repay loans attached to it.

Warning

An attempt to stop foreclosure by filing a quit claim deed comes with unfavorable results to the homeowner in most cases. If the process of foreclosure has already begun, the lender, generally speaking, has already announced it wishes to either be paid the balance or take possession of the home. This often prompts property owners to do whatever they can to keep their homes, including quit claiming them to others. As previously noted, a new owner may ask the previous owner to leave the home once the quit claim deed is filed, which needless to say, is not a good situation for the resident.

It is common for real estate investors to look for quick profits by convincing troubled homeowners in foreclosure to transfer their homes to them by using quit claim deeds. An investor will usually bring the home loan (or loans) current with the bank, then sell the property and pocket the proceeds. The existing homeowner, in many cases, gets nothing. It is also common for a former homeowner, after they've deeded over the property, to continue living in the property as a renter. The new owner, therefore, becomes their landlord, and may choose to sell the house back to the tenant at a later date. This can be tricky in some cases as many lenders will not allow this type of arrangement. And it often results in a former owner repurchasing a home for more than they originally paid to make it profitable for the new owner. Simply stated, a quit claim deed is not a viable or wise option to stop the foreclosure process.

Expert Insight

If you are in foreclosure and wish to save your home, the best option is to contact your lender and try to work out a payment plan or inquire about refinancing the property. In many situations, lenders will work with homeowners to bring loans current, even if the foreclosure process has already begun. If you are unsuccessful in working out a deal with your lender, or unable to refinance, there are options.

You may wish to sell your home to a trustworthy friend or relative for a price equal to the balance of your home loan. This would pay the lender and end the foreclosure process. Keep in mind, when such a sale (short sale) occurs, you would relinquish rights to the property. However, if you have a good relationship with the buyer and they get involved to truly help you, you may immediately purchase the home back with a land contract. Or, they may quit claim the house back to you and work out repayment options privately, although this wouldn't be wise on the part of the seller.

Expert Insight

If you run out of options, filing bankruptcy may also save your home. Whether your attorney decides to file your case under Chapter 7 or Chapter 13 bankruptcy law, the court will likely order a "stay" in the foreclosure proceedings. This would temporarily stop the process while your attorney figures out the best options for you. In many bankruptcy situations, homeowners are permitted to keep their homes, depending on several variables in the law and individual circumstances. A bankruptcy attorney will explain these options along the way.