Legal Question in Real Estate Law in California

Home Equity loan without wife's approval

My sister-in-law lives in California. Her husband took out a hefty home equity loan on their house without her knowledge or approval. She found this out when talking about getting a divorce. Because of this loan they owe more than the home is currently worth.

Does she have any legal separation from this loan since she didn't sign for it?

Asked on 7/14/08, 2:11 pm

1 Answer from Attorneys

Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Home Equity loan without wife's approval

Not many lenders would make such a loan without the wife's signature, especially if the house is held as community property. Part of the early analysis, then, is to find out how title is held, and while at the Recorder's office checking this, I'd look for any falsified or forged documents that may have been recorded in connection with the loan.

Legally, one spouse cannot sell or encumber (borrow against) community real property without the written consent of the other (Family Code section 1102(a)). However, some couples choose to take title to their marital residence as joint tenants or some other way, and in that case each spouse may, within limits, borrow or even sell to the extent of his or her separate interest.

The limits are (a) that husband can't sell or encumber wife's half interest, and vice-versa; (b) spouses are required to deal with openness, candor and good faith in their financial dealings, so such deals shouldn't be done secretly; and (c) the market and collateral value of a half interest in real property is pretty weak, because the buyer or foreclosing creditor picks up a "roommate" in the person of the non-borrowing or non-selling spouse, and who wants that!

If the home equity loan involved no fraud and the proceeds were used for community purposes, the spouse would probably not get docked for it in any court-designed property split upon dissolution, but the wife could be entitled to adjustment of her usual 50% share if the H. did something improper. This is a question for a family law attorney. With respect to third-party liability, i.e. the wife's possible liability to the lender, if the loan is on his separate interest only, such as his interest in joint-tenancy property, she is not liable. Further, she is not liable, I would guess at least, if the lender had reason to know the borrower was married and/or it was a community-property loan to which the wife had not consented in writing.

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Answered on 7/14/08, 4:37 pm

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