The quitclaim deed holds the statement that the person named (and whose signature the property bears) has quit ownership of the property listed and conveys it to the person who holds the quitclaim deed (grantee). The quitclaim offers no guarantee. In fact, someone with no ownership whatsoever is able to file a quitclaim on a property. This is usually done with the intent to commit fraud by selling someone “zero” ownership of a piece of property. If the claim is wrong, there is no legal remedy. The one holding the fraudulent quitclaim is simply left with no ownership for their money spent.
In some instances the quitclaim deed will pop up in connection with mortgages that have a cosigner. When someone cosigns for a loan, they are agreeing that their financial position can be used along with others on the loan, to qualify for financing. Co-signers on a loan can each be held solely responsible for the balance of the loan.
When a mortgage is held by one individual and cosigned by another, bankruptcy can leave confusion in its wake. For instance, if the original debtor declares bankruptcy and receives a discharge of the debt, they are no longer liable. The cosigner would then be completely liable for the full balance. When the debtor filed bankruptcy, the cosigners must be listed on the assets and liabilities list in relation to the mortgage. The cosigner not filing for bankruptcy will sometime be invited to the 341 hearing as a creditor listed in the bankruptcy petition.
The cosigner could take the opportunity to question the debtor at the 341 meeting if there is a problem. For instance, if the cosigner was involved in the submission of money to be used as payment of the mortgage that the debtor obviously did not use for the purpose they can bring this up at the 341 meeting. If the debtor cannot account for the money, or if they obviously hid it their bankruptcy could be dismissed. They could even be charged with bankruptcy fraud and/or contempt of court.
The importance of the quitclaim deed in relation to the mortgage is actually minimal to none. The mortgage is based solely on ownership. Cosigners have a co-ownership of the property. If one of the co-signers quitclaims the property, the remaining cosigners are left with the rights as well as the liability associated with the property. The quitclaim will have no actual impact on the liability for the loan. The cosigner who quitclaimed will still own that portion and hold the financial obligation associated with it. If the quitclaim co-signer files bankruptcy and ends up in bankruptcy court, the quitclaim still offers little to no impact as the bankruptcy focuses on finances and liability which have nothing to do with a quitclaim so it doesn’t make much sense to file a quitclaim prior to filing for bankruptcy.
If you still have questions about the quitclaim deed or filing for bankruptcy, you should contact one of the experienced southern California bankruptcy attorneys at Westgate Law so we can discuss it further.