When you obtain a mortgage from a lender, you, as “the borrower”, are expected to fulfill a myriad of obligations. These responsibilities include, among other things, making your regular mortgage payments, maintaining a proper home insurance policy, and keeping the property in good condition. If you fail to satisfy your obligations under the loan, you will be considered “in default” (i.e., failing to live up to your side of the agreement). When you default on your loan, your lender has the opportunity to initiate foreclosure proceedings. Foreclosure proceedings are, generally, costly, time consuming and can severely impact your credit rating. As such, if you find yourself in a situation where you are unable to meet your responsibilities under a mortgage, it may be beneficial to consider offering your lender a Quit Claim.
Quit Claims are agreements between a lender and borrower whereby the lender agrees to cancel the debt owed to them by the borrower in exchange for the borrower transferring ownership of the property to them. A lender will not accept a Quit Claim unless the borrower has some remaining equity in the home. If a lender agrees to a Quit Claim, title gets transferred to the lender by way of a Transfer of Land. Similarly, both parties sign a Quit Claim, which states that the borrower agrees to transfer ownership of the property to the lender in exchange for the lender releasing the borrower for any debt owed to them. As such, the debt is cancelled. The Quit Claim will further outline what items, if any, the borrower will take with them from the property (ex: appliances) and when the borrower is expected to vacate the premises or if alternate living arrangements are to be made.
Similar to foreclosure proceedings, a Quit Claim results in a borrower inevitably losing ownership of their home. Likewise, they also negatively affect your credit rating and impact your ability to borrow money in the future. However, unlike foreclosures, Quit Claims indicate that the borrower was cooperative with the lender to help them recover their debt and tried to make the best out of a terrible situation. As such, a Quit Claim does not seem as bad as a foreclosure would on your credit rating.
If you have any questions concerning Quit Claims then please do not hesitate to contact Khemka Law or counsel of your choosing. If there is a topic you would like us to cover then please let us know! We are always here to assist you. Thank you for taking time to read this Thursday Tidbit.
Pranav Khemka, Barrister & Solicitor
T: (403) 457-9577 | F: (403) 457-9578