During the marriage, it may become desirable to acquire title to a house or other real property in the name of one spouse; or, to transfer title from both spouses (commonly held in “joint tenancy”) to one spouse, in order to obtain a favorable interest rate in connection with the purchase or refinance.  While this may be a common practice in the world of real estate, transferring title solely to the other spouse may have drastic legal consequences.

Spouses owe each other fiduciary duties similar to those owed by a corporation’s officers to its shareholders.  Generally, these duties require each spouse to deal with one another in good faith and not to take advantage of the other.  These duties continue to apply to both spouses throughout the marriage, after the date of separation and in certain circumstances after the judgment has been entered.  Absent a clear and explicit understanding of the particular transaction and an agreement to transfer title back to joint tenancy, a spouse could literally be signing his or her rights away to that property when they sign the quitclaim deed to obtain the desired loan.

A California court of appeal recently held that a husband violated his fiduciary duty to his wife when after his wife quitclaimed her interest in the house, based upon husband’s promise to put her on title after the purchase was complete, he failed to do so.  The wife quitclaimed solely for credit purposes.  The court of appeal held that this breach of duty meant the quitclaim deed was obtained as a result of undue influence and was therefore invalid. This case was distinguished from another appeals court case which involved almost the same facts, but in that case, there was no specific agreement or promise to transfer the property back to joint tenancy and therefore the quitclaim deed was valid thereby denying the wife of any interest in the property.

If spouses are advised to transfer title or relinquish title (i.e., sign a quitclaim or other similar deed) for credit purposes, it is important that they explicitly verbalize to each other and the loan/escrow officer that the spouse who is conveying the property is doing so solely for credit purposes, and that it is it is agreed that the other spouse will transfer title back to them as joint tenants immediately after escrow closes.   The best way to do this is in writing.

Spouses should understand that a loan officer or escrow officer is not qualified to give legal advice.  During any real estate transaction when a spouse is asked to transfer title to the other spouse, that spouse should seek the advice of a family law attorney to ensure that his or her property rights are fully protected.