Rental Property Investor · Saint Louis, MO · Member since 2012 · 115 posts · 42 votes
My state is Missouri,
Can someone please explain to me the advantages of signing a marital waiver vs the spouse being on the deed of trust. We are in no way worried about divorce, everything I read on the topic has to do with that.
We are working towards getting mortgages/properties in each of our names so we can each get to the 10 property max for residential mortgages. This is why initially we started doing properties in one of our names only.....
By putting both of our names on the deed, does that expose us to risk should someone (tenant) sue. Are we now both liable if we are both owners of said property, whereas if only one of us is on the deed whoever is suing could only go after assets in that spouses sole name? Does having the spouse not on the deed protect them? If a marital waiver is signed, what happens should I pass away, would my wife still get the properties upon my death or could a bank easily foreclose even if mortgage payments are still paid on time?
My understanding is when banks look at potentially giving you financing they look at how many mortgages you have, so if a mortgage was only in my name but we were both on the deed, that would not hurt her chances of getting another mortgage, correct?
Additional info: we are refinancing two properties currently in both are names we are planning on switching one to each of our names so instead of two mortgages coming up in each of our names, we would have one each, but want to acquire more in the future.
First, if the lender will accept a waiver then you can go that route and your are correct, so long as the other is not on the note or deed of trust and not named in title. It would be individually owned. In the event of death the property in your estate will pass by Will or by law to the spouse, there could be taxes in passing the estate. The heirs have the right to assume any mortgage, a lender does not call a note due out of an estate matter, however if the note comes due later they will need to qualify for any renewal. Good luck up there! :)
Lots of questions in there, let's see if we can address them all:
1. Advantage of Marital Waiver vs Deed of Trust? I am not sure 'advantage' is the right word here. A Marital Waiver is when the spouse acknowledges a lien on the subject property, subordinating their interest in the real property to the lien holder. In Missouri a spouse must either be on the DOT or sign a waiver. The Mortgagor (or Borrower spouse) subordinates their interest as a function of the security instrument execution. There is probate law in the state which requires the same the spouse to acknowledge.
2. Does putting both spouses on the Deed (taking title to the property) create liability for both spouses? Yes. If you are both vested in title to the real property, the owner of the real property, whom ever it may be, would bare the liability of the real property.
The best defense against this liability is insurance first and then you could also look at vesting the property into a Limited Liability Corporation or similar as additional layers of liability protection.
Another concept here which is being jumped over, if you are married your assets are joint by law through the marriage. So in your question, the separation that you are asking about essentially does not exist. Your spouse does not own assets which you do not have an interest in and vice versa. This is also why the Waiver or DOT must be signed by the non-borrower spouse.
3. What happens in death of a spouse? There is probate law which handles this. The spouse holds an interest in the real property as it is a joint asset, even if the spouse is not a Tenant In Common. Upon the death of the borrower spouse, the deceased spouse interests are eliminated (they are dead) so the living spouse who is still alive has all of the other spouses interest.
4. Can a foreclosure take place in the event of the death of a borrower spouse? Not without default. The death of the borrower spouse does not create the ability for the DOT owner to seek remedies. Through marriage the living spouse has an interest which pass to the living spouse as an heir, well it doesn't really pass as much as the interest of the dead spouse are now consolidated in the living spouse. That said, you will have to make payments or face foreclosure.
5. Mortgage in one spouse name, both on title, does this diminish the ability for the non-borrower spouse from obtain future mortgages on other properties in line with maximum mortgages? The property is assumed to be a marital asset unless proven otherwise. In most cases any property acquired during the term of the marriage is marriage property. So trying to put a spouse on title versus the other spouse in an effort to qualify or obtain more mortgages will not really work. Another way to look at this which gets passed over by many who ask this question, is that more than likely the total debt service is still under scrutiny not just the vested name on title liabilities. The marriage creates joint interest in property and the debts secured by said property if the property is used as collateral.
10 properties is not a small amount of properties and when you get to this point, you will likely be looking at getting the properties vested in a corporation (LLC, LP, etc) opposed to taking title in your names. You are in the business of real estate for sure at that point and will want to take further steps to create better tax situations for yourself.
While many folks look to find a loophole in this underwriting idea, it doesn't work all that often, again the debt service must still be there to qualify as a single spouse and that usually breaks the plan down. If you think about it, what would happen if the spouse dies? Well the survivor still has to pay all those debts or he/she will default, lenders get that point.
Additionally, the 10 property rule is a conventional loan guide and is not the case for all lenders. (conventional = Fannie/Freddie) A local bank who portfolios their loans may not have this guideline. So remember, it is not an absolute 10 and your done.
I think Bill Gulley is a Missouri guy who can look this over and add additional insight relative to your state.
As to #5, Dion's point is correct in both being on title.
If you have a wavier of marital interest and the other spouse is not on title, the note or DOT, then you have a shot at obtaining your own property and financing. The initial lender may accept that and they may not.
Under state laws, a person may elect to waive certain rights, however there are cases where such waivers may be nullified as some rights are by operation of law and can not be waived or abandonded. While the waiver may be effective as to your spouse's interest in a property while you are living, at death they will still acquire an interest. The other issue is that while you may not have an interest in or to the property, if the income derrived from the property becomes joint marital property, then there is an interest in the property as it generates income as a benefit to that spouse. A lender may or may not buy your overall plan. :)