Is the title to your property held in someone else’s name, or is someone else named a co-owner on your deed, even though you paid the down payment and all the mortgage payments?

Example #2: Fred found a house to buy but he has bad credit. His friend Joe agreed to help Fred “qualify” for a loan. In order to obtain loan approval Fred and Joe represented to the lender that they were buying the property together. Fred and Joe took title to the property as joint tenants. Fred paid the entire down payment from his own funds, pays all of the mortgage payments and all the expenses associated with the property. Joe was married at the time of the purchase. What happens if Joe dies while still on title, or if his wife claims an interest in the property in a divorce?

Although variations on the above story are common, allowing someone to “help” you qualify for a loan by applying for credit on your behalf is dangerous, and often is deemed a fraud on the lender, even if the parties had innocent intentions. If you are thinking about asking someone else to help you buy a property by using his or her credit, be very careful that the loan guarantor or co-signor does not have to hold title on the deed. Read the loan application and loan papers carefully. Many mortgages with the best interest rates require loan applicants to swear under penalty of perjury that the property will be “owner occupied.”

In addition to the potential legal problems arising from misrepresentation to the lender, Fred’s situation is precarious because the deed stating that Joe is a half owner is presumed to accurately state legal title and the true ownership of the property. Even if the mortgage is paid current and the lender has lost nothing, some judges will deny relief to people like Fred because Fred participated in an unlawful act. In the above example, Fred could lose as much as half of his investment in his home, his mortgage may become immediately due if the lender finds out about Fred’s claims, and Fred could possibly be sued or be criminally liable for participating in a fraud.

If you have already entered this type of transaction, you may have some remedy to protect your investment. In some cases courts have found that a holder of legal title holds title in an equitable trust for the benefit of the person who paid for the real estate for example. Consult your lawyer as soon as possible to discuss your best course of action.