Short sales are complicated enough. Throw in a quitclaim deed on the property, and the fun just never seems to end. If you are going to attempt a purchase or listing via the short sale process, make sure you’ve done your homework and have an agent who is familiar with shortselling insanity to walk you through the transaction.

Just what is a quitclaim deed anyway?

• A Quitclaim deed is used by an individual to disclaim any interest he/she (the grantor) may have in a piece of real property and passes that claim to another person (the grantee).
• It’s often utilized in a divorce situation to transfer ownership of the house to just one of the spouses.
• However, a quitclaim DOES NOT AUTOMATICALLY remove a person from any bank notes he/she has signed against the property - be it the 1st, 2nd or 43rd lien.
• Which means a person, like an ex-spouse, could owe money on a house he/she has no legal title to. Fun stuff.

What’s the impact of a quitclaim in a short sale?

• Remember a short sale of a property is contingent upon approval by the bank/banks that have liens against the property because they will be taking the hit - that is, taking less pay-off than what is owed.
• Because there’s a hit to sellers as well, right on the FICO score, when the bank sends out an approval letter, it requires signatures of acknowledgement and acceptance. (This is probably to try to ensure that everybody knows what they’re getting into - would have been nice to have that kind of clarification before signing the mortgage note, huh?)
• Again, a quitclaim deed by itself does not remove a person from bank notes he/she has previously signed in connection with the property.

So why worry about all this in a short sale?

• Divorce precipitates many a short sale situation. (It’s probably one of the top three scenarios banks see in hardship letters from sellers.)
• Sometimes ex-spouses are not very friendly with each other.
• Sometimes certain ex-spouses would rather see a foreclosure on that house they just quitclaimed away and take the slam to their credit, than be helpful or logical in any way.
• And guess what - without their little signature on that big bank letter, the bank will withdraw its approval and the deal is dead.

These are the unpredictable waters of short-selling. Make sure you have your floaties on in the deep end of the pool.