Summary:

Obtaining a loan without informing one's spouse can have significant personal and legal implications for trust and fidelity. In a real-life example, a husband intentionally deceived his wife, who was unaware of his plan to obtain a loan and encumber their owner-occupied family home. This deceit is a cautionary tale, highlighting the potential personal consequences of financial decisions within a marriage. The couple jointly held the property title as tenants in common, which means they both had a legal right to the property. This raised serious legal questions about the husband's actions. These could lead to severe legal consequences, including the potential loss of the family home—a devastating outcome that no one would want to face—and the breakdown of trust in the marriage. This breakdown of trust underscores the importance of transparency in marriage. 

Many challenging days and lonely nights were forthcoming! By keeping his wife in the dark about his loan plans, the husband has found himself in a lonely and isolating situation, a personal consequence of his deceit. His isolation, a direct result of his actions, is a powerful reminder of the potential personal consequences of financial decisions in a marriage and a stark illustration of the regret he must be feeling. This regret, a direct result of his actions, is a powerful reminder of the potential personal consequences of financial decisions in a marriage.

Real-Life Example:

The borrower's mortgage broker said...

The borrower's mortgage broker stated, My client wishes to secure a second trust deed on the family's single-family, owner-occupied home to establish an iron fabrication business specializing in custom homes. He fabricates entries, gates, decorative railings, and handrails. He also does custom orders. He has owned his owner-occupied property for a long time and has accumulated a significant amount of equity. However, the wife was never mentioned in these discussions about a potential loan.

The borrower's mortgage broker requested that the borrower fill out the application documents, including the loan application, credit authorization, and disclosures. Upon receiving the application back from the borrower, the borrower's mortgage broker noticed that the wife had not signed it. When questioning the borrower, it was apparent that the husband intentionally failed to disclose his intention to encumber the property to his wife. She was unaware of the pending loan and her husband's desire to use the property as collateral, which was a clear act of deceit.

The competent lender responded...

This case underscores the importance of seeking legal advice and being fully informed about all financial decisions in a marriage. The wife's emotional outburst upon learning about her husband's intention to borrow money using their home as collateral was a clear sign of the strain on their relationship. It serves as a poignant reminder of the personal implications of financial decisions in a marriage.

In this case, the procuring mortgage broker should have obtained a title profile and noticed that the husband and wife were the property owners. The broker did not adequately inquire about the borrower's intentions, a crucial step in ensuring the loan process's legality and transparency. This highlights the mortgage broker's role in procuring a mortgage, acting in the client's best interest, fulfilling a fiduciary obligation, ensuring that the client understands the loan's terms and conditions, and ensuring all parties are informed and involved.

In California, a spouse cannot sell, convey, or encumber a property without the other spouse's consent. This legal requirement, known as the spousal consent law, is designed to protect the rights of both parties in a marriage. If such a transaction occurs without the non-consenting spouse's permission, they can petition the court to void it. This could lead to the lender losing its lien position on the property, meaning it would no longer have the right to foreclose in the event of default and become an unsecured creditor, a riskier position with a lower chance of full repayment.

Reference material:

https://schorr-law.com/community-real-property-spouse-or-domestic-partner-joint-ownership/

I have not addressed the subject of consumer purpose vs. business purpose lending and whether it was appropriate to encumber this couple's single-family owner-occupied property to start a metal fabrication business.

Check out my article on my website:

https://danharkey.com/post/consumer-vs-business-purpose-lending