Honey, I Didn’t Think You Would Care!

By Dan Harkey

Real-Life Example:

Obtaining a loan without informing a spouse can have significant legal trust-related implications. In a real-life example, a husband intentionally kept his wife unaware of his plan to get a loan and encumber their owner-occupied family home. The couple jointly held the property title as tenants-in-common, which raised legal questions about the husband's actions and could lead to severe legal consequences, including the potential loss of the family home and the breakdown of trust in the marriage.

Many challenging days and lonely nights were forthcoming!? By keeping his wife in the dark about his loan plans, the husband may have created a lonely and isolating situation.

The borrower’s mortgage broker said …

“My client wants to borrow a second trust deed on the family single-family owner-occupied home to start an iron fabrication business for custom homes.? He fabricates entries, gates, decorative railing, and handrails.? He also does custom orders.? He has owned his owner-occupied property for a long time and has plenty of equity,” The wife was never mentioned while discussing a potential loan.

The borrower’s mortgage broker requested the application documents for his borrower to fill out, including the loan application, credit authorization, and disclosures.? Upon receiving the application back from the borrower, the borrower’s mortgage broker noticed that the wife had not signed it. This situation underscores the crucial role of open communication in financial decisions within a marriage.? When questioning the borrower, it was apparent that the husband intentionally failed to disclose his intention to encumber the property to the wife.? She did not know of a potential loan or her husband’s desire to use the property as collateral. His intentional withholding of the information from his wife, broker, and lender highlights the need for transparency.

The competent lender responded …

Both husband and wife borrowers must understand and agree to the terms and conditions of any proposed loan. They should also be involved in approving and signing all related documents. In this case, when the wife was informed about her husband's intention to borrow money using their home as collateral, she objected to the process. This highlights the importance of seeking legal advice and being fully aware of all financial decisions within a marriage. By doing so, individuals can feel reassured and informed, ensuring their rights and interests are protected, underscoring the necessity of professional guidance and the peace of mind it can bring.

In this case, the mortgage broker should have obtained a title search and noticed that the husband and wife owned the property. The broker did not adequately inquire about the borrower’s intentions, a crucial step in ensuring the legality and transparency of the loan process. A mortgage broker's role is to act in the borrower's best interest, ensuring they understand the terms and conditions of the loan and that all necessary parties are informed and involved. This incident serves as a reminder of the crucial role of a reliable and responsible mortgage broker who plays a pivotal role in safeguarding the interests of all parties involved in a loan transaction.

In California, a spouse cannot sell, convey, or encumber a property without the other spouse’s consent. This legal requirement, known as the spousal consent law, is designed to protect the rights of both parties in a marriage. If such a transaction occurs without permission, the non-consenting spouse can petition the court to void it. This could lead to the lender losing its lien position on the property, meaning it would no longer have the right to foreclose in the event of default and become an unsecured creditor, a riskier position with less chance of full repayment.

Reference material:

https://schorr-law.com/community-real-property-spouse-or-domestic-partner-joint-ownership/

I have not addressed the subject of “consumer purpose vs. business purpose” lending and whether it was appropriate to encumber this couple’s single-family owner-occupied property to start a metal fabrication business.? Email me if you want an article on the subject.

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Thank You

Dan Harkey

Educator & Private Money Finance Consultant

949 533 8315 [email protected]

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