If only one spouse is borrowing the money, who needs to sign which documents at the closing on the loan?

A common question that arises during the closing of a loan where only one spouse is obligated under the promissory note is: Who needs to sign which documents?  There are a variety of reasons this question comes up.  For example, the property may be owned by only one of the married spouses or one of the spouses may not qualify for a loan.  In these instances, one should always remember the case of Ethridge v. TierOne Bank, 226 S.W.3d 127 (Mo. 2007) in which Supreme Court of Missouri issued an opinion highlighting the importance of obtaining the correct signatures on loan documents.

In Ethridge, David and Mary Ethridge, husband and wife, purchased a home with a loan from Countrywide.  Two years later, David Ethridge applied to refinance the loan with a different lender.  He borrowed $100,000.00 that was used to pay off the balance remaining with Countrywide, which both he and Mary were obligated under, and took approximately $15,000.00 which was used to remodel the home.  David was the only party to sign the refinance promissory note.  Both David and Mary Ethridge signed the Deed of Trust.  However, “Grantor” was identified solely as David Ethridge in the Deed of Trust.  Additionally, the Deed of Trust stated, albeit incorrectly, that title to the property was vested solely in David Ethridge.  Two years after refinancing, David Ethridge died in an automobile accident. Later, the bank holding the Deed of Trust sought to foreclose against the property.  Mary Ethridge filed a petition asking the Court to declare that the Deed of Trust was void as to her because she was not named as a Grantor and therefore her vested interest in the property was not conveyed.  The Court rendered summary judgment in favor of Mary Ethridge on the basis that the Deed of Trust was unambiguous, and that Mary Ethridge had not pledged her interest in the property.

The Supreme Court of Missouri affirmed the award of summary judgment.  The Court’s opinion acknowledged that Mary Ethridge was enriched as a result of the loan but cancelled the Deed of trust on the following basis: 1) the defined term of “Grantor” was unambiguous and thus not open to additional interpretation; 2) the bank was not able to reform the Deed of Trust because there was no evidence that Mary Ethridge had an agreement with the bank to pledge her interest in the property, even though she had signed the Deed of Trust; and 3) the equitable remedies of estoppel, equitable lien and equitable subrogation were not available to the bank because there was no evidence that Mary Ethridge had any obligation under the promissory note nor did she commit any act of fraud.

This case is important because the Supreme Court acknowledged that Mary Ethridge was receiving a windfall, but nonetheless ruled in her favor.  The take away from this Supreme Court decision is to always make sure that in the case of married borrowers, the Deed of Trust properly identifies and defines the “Grantor”, “Borrower”, or “Mortgagor” as both spouses where marital property is involved, and that even if only one spouse is obligated under the promissory note, there should be no such limitation within the Deed of Trust such as having the phrases “non-borrowing spouse”, “pro forma” or “waiver of marital interest”.  Where only one spouse is in title, both parties should be identified as “Grantors” and still sign the Deed of Trust as a matter of best practice, but a waiver could be appropriate for the non-titled spouse.