In the U.S., community property laws in certain states can require a non-borrowing spouse to sign loan documents or consent to the debt, even if: they are not a borrower on the loan, they do not own the property being financed and they are not a member of the borrowing entity (LLC, partnership, etc.)!
This is because, in community property states, debts incurred during the marriage may be considered jointly owned by both spouses and real property rights can attach even if title is in one spouse’s name only.
There are nine states, the “community property states,” where this legal reality comes into play for DSCR Loans. These states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In community property states, the non-borrowing spouse is often required to sign certain documents (e.g., the deed of trust, mortgage, or spousal consent forms) to waive any potential community property interest in the collateral. Title companies may also require spousal signatures to ensure the lender’s lien is enforceable, even if the spouse isn’t personally liable for repayment.
If an LLC, partnership, or trust is the borrower, but one of its members or trustees is married in a community property state, such spouse may still be asked to sign a spousal consent or quitclaim interest. While uncommon, some DSCR Lenders may also require the spouse to undergo a limited background or credit check in some cases, even if they aren’t a borrower, but this isn’t typically required.
Q: Do community property state rules affect DSCR Loan approval?
A: Yes. In community property states, marital property laws can require a non-borrowing spouse to sign certain loan documents or consent to the debt, even if they’re not on the loan or property title. While this usually doesn’t block DSCR Loan qualification, it can add extra documentation and signature requirements, so borrowers should make sure each spouse is ready and available to sign documents when needed, and plan ahead accordingly.
Spousal consent can also affect DSCR Loan requirements even in cases where the spouses are legally separated or divorced, and these are unfortunately not uncommon instances that can jeopardize otherwise smoothly sailing DSCR Loans. For these cases, where the borrower (guarantor) is separated and divorced, whether spousal consent is required for a DSCR Loan depends heavily on state law, title status, and whether the marriage is legally dissolved.
In cases where the prospective borrower (or relevant guarantor) is separated but not legally divorced, in many community property states, the spouse may still have community property rights until a divorce decree or legal separation agreement is finalized and recorded. If the state recognizes only legal divorce (not informal separation) as ending community property rights, the non-borrowing spouse could still be required to sign a spousal consent or waiver. Some title companies and DSCR Lenders will accept a properly executed and recorded legal separation agreement that explicitly relinquishes interest in the property, but this varies by state and by the title insurer’s policies.
Generally, if the spouses are legally divorced , i.e. once a final divorce decree is entered and property rights are addressed, the community property relationship ends and there will be no spousal consent required for DSCR Loans. While the title company will typically request a copy of the divorce decree or property settlement agreement to document that the ex-spouse has no interest in the property, that should be the limit of any extra documentation or requirements. However, if the subject property was acquired before or during the marriage and there’s no clear statement in the decree addressing it, title insurers (and thus the DSCR Lender) may still require additional releases or quitclaim deeds from the ex-spouse to eliminate potential claims.
Sadly, a final not unheard-of spousal consent complication for DSCR Loans are cases of pending divorce, i.e. if divorce proceedings are underway but not finalized. In these cases, if in a community property state, the non-borrowing spouse’s rights may still be intact. In this case, spousal signatures and consents will likely still be required by the DSCR Lender, and an uncooperative spouse – not unusual in the middle of a divorce – can put a halt to a DSCR Loan close without accommodating lender requests. In cases like these, it is likely smart to get spousal consent documented and legal forms completed prior to starting the DSCR Loan process, as an uncooperative soon-to-be-divorced spouse can destroy a DSCR deal, costing everyone valuable time and money.
Q: Do I need my spouse to sign on a DSCR Loan if we’re separated or divorced?
A: It depends on your state’s laws and the status of your separation. In community property states, a non-borrowing spouse may still need to sign DSCR Loan documents if the marriage hasn’t been legally dissolved, even if you’re living separately. Once a divorce is finalized and property rights are settled in a court order, spousal signature requirements usually end, but lenders and title companies will likely require a copy of the decree or settlement to confirm no remaining interest in the property.
Note that community property rights apply to the state where the sponsors (guarantors) live and not necessarily to the state in which a property is located. For example, the spouse of a guarantor living in New York (not a community property state) would not need to sign paperwork for a property purchased in Texas (a community property state). However, if reversed, the spouse of a guarantor living in Texas would need to sign paperwork for a property purchased in New York.
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