Please explain the reason why a nonborrowering spouse must sign the mortgage on a NJ refinance transction. Please confirm the spouse has not legal obligation to the loan.
2 Answers from Attorneys
I am presuming that the non-borrowing spouse is in title. As such, he/she must be on the mortgage so that all ownership interests in the collateral are covered. By law, even if not in title (on the Deed) a spouse has certain property rights if the property is the marital residence. These rights cannot be extinguished without extensive and expensive litigation if there is a repayment default and, thus, the lender will have great difficulty in such case. The spouse must be bound by the mortgage terms, even if not signing the other repayment documents, like the Note to protect the Lender if there be a default.
The loan has 2 basic documents. (1) The Note; and (2) The Mortgage. You need to distinguish between the two. Whoever signs the Note is obligating themselves to pay back the money. The non-borrowing spouse would NOT sign the Note. Then there is a separate document called the Mortgage, which simply allows a lien (mortage) to be placed on the property (such as your house) that secures the loan. If your spouse is on the deed, then she must sign the Mortgage to allow a mortgage lien to encumber the house since it is co-owned by her. If your spouse is not on the deed, then she still must sign the Mortgage since she still has marital rights in the house and must sign to allow a mortgage lien to encumber the house. Either way, signing the Mortgage document does not create the actual repayment obligation (the Note does), it merely allows a mortgage lien to go against the house. If a non-borrowing spouse refuses to sign a Mortgage, then the bank won't give you the loan since they would not have a valid lien on the house. So that is the reason why even a non-borrowing spouse must sign the Mortgage. This is completely different from the Note. Whoever does not sign the Note would not be liable for the money in the event of a lawsuit. However, they do stand to lose the property in foreclosure if the Note does not get paid.
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