Several times a month, attorneys at Federal Title are presented with the following scenario:
My buyer wants to add his wife/girlfriend/parent/child to the deed at closing. Can you just add him or her to the deed when we come in to sign?
The answer to this question is no, and there are multiple reasons why not.
First of all, the contract was signed between Buyer 1 and Seller. The Seller has not agreed to sign a deed to Buyer 1 and Buyer 2. Therefore, the Seller is under no legal obligation to sign the deed over to both Buyer 1 and Buyer 2. While it is true that in most scenarios the Seller does not really care who is listed on the deed, as long as he or she gets a check, you do run the risk of the Seller not agreeing.
The proper way to avoid this issue is to present the seller with a contract addendum, adding Buyer 2 to the contract. Of course, the Seller can refuse to sign the addendum, but at least the issue will be resolved in advance, rather than at the closing table, where the Seller might feel that something shady is taking place.
Second, if there is a lender involved, the lender will likely want a contract addendum as soon as possible. Lending practices have tightened over recent years, and many lenders have guidelines that must be met in order to close. Adding a second purchaser at the last second, even if that second purchaser is not going to be on the loan, can cause problems with the loan approval process.
For example, some lenders require that every purchaser must be on the loan as well, which in turn means that credit needs to be pulled, employment needs to be verified, etc. Also, a last-second addition could raise red flags for the lender: The lender might think that the last-second addition of Buyer 2 was done on purpose to avoid pulling credit on Buyer 2.
These lender concerns are magnified if it is going to be an FHA or VA loan.
Third, the title company also needs to know all the purchasers’ names as soon as possible. In a purchase transaction, the title company needs to run a judgment lien search on all the purchasers. Let’s say that an IRS tax lien is discovered against a purchaser — that makes the buyer uninsurable for title insurance, unless the lien is either paid or released. Finding out about a second purchaser the day of closing does not allow for adequate time to perform the required search.
In summary, last-second additions (or subtractions) from a purchase contract are not advisable. If somebody does need to be added to title, the best way to handle it is to have a contract addendum signed by all parties to the contract, and to forward the addendum to both the lender and the title company as early as possible.