Can I Give a Property Back to the Bank?
With the economic downturn and fluctuating property values, I get lots of questions here at RMLO Law LLP about the legal concept of a ‘Quitclaim’.
The typical scenario is one where the property is worth less than the current mortgage value and has what appears to be permanent negative cash flow. The questions I get revolve around property owners who have done everything they can to make the property work for them, but it just doesn’t. They can’t keep the property so they have to do something else. Foreclosure is looming. As owners start to investigate what their options are, their research brings up the notion of ‘quitting one’s claim’.
A Quitclaim is a legal document that states you have no further claim to something, in this case a property.
You are giving up all your rights. It generally doesn’t take away any liability.
Quitclaims are sometimes used when you want to give a property back to the bank. Along with other legal documentation, the bank often wants you to sign a Quitclaim, which officially states that you don’t have any more rights to the property. Having the Quitclaim in hand then allows the bank to officially and legally take control of property and proceed with the other legal paperwork that would move the title from your name to their name.
If there is a Quitclaim together with the foreclosure or a foreclosure on its own, here is the next question I get: “What liability do I still have? Can the bank come after me for the difference between the mortgage and what they might sell it for (the deficiency)?”
The bank can come after you for the deficiency if you have a CMHC or other NHA insured mortgage, say with a company like Genworth. If it’s a conventional mortgage and it’s in your personal name, they can’t.
Here’s another confirming question that I get: “So since we put 25% down and didn’t need any insurance (no CMHC, no Genworth, etc.), they can’t come after me or whoever is on the mortgage… Is this only an Alberta thing?” That’s right. And, yes, it is only an Alberta thing. In all other provinces the lender can come after you for the deficiency once they have sold the property. Saskatchewan might have some minor protection in this regard but, really, it is only an Alberta thing.
Whether or not a Quitclaim is used in a particular situation generally depends on the parties involved but mostly it depends on whether the bank wants or needs a Quitclaim. If you are going to formally surrender the property to the bank rather than just abandoning, then you need to speak to the bank and see how they want to go about it. They may or may not require the Quitclaim.
Whatever you do, please do not simply walk away from a property without talking to your lender!
Contact Barry McGuire now.
Alberta real estate needs an Alberta real estate lawyer.