Depending on how your real estate loan documents are drafted and executed, a lender may not be able to foreclose on your home. However, the circumstances where this might occur are unlikely, typically occurring during an oversight or mixup in the closing process. In most cases, the lender can properly foreclose on your property, even if you never agreed to make loan payments.
To better understand how this could happen, you need to have a working understanding of the three main documents pertaining home financing and ownership. Your property deed (title) is the document which transfers legal ownership of your home from its previous owner to you and which determines your ownership of your home. If you are lucky enough to not requiring financing, the other two documents (note and mortgage) will not come into play. However, most homeowners requiring financing, either when they initially buy a home or when they improve/expand later on.
The note is your written promise to the lender to repay your home loan. However, without some mechanism through which the lender can enforce this promise, it would simply be too risky for lenders to provide borrowers with loans. This is where mortgages come in.
A mortgage is the document in which you essentially pledge your house as collateral in the event of loan default. A mortgage is what allows the lender to foreclose on your home if its loan is not repaid. Lenders typically require that all parties wanting to be on the deed also sign any corresponding mortgage, even if everyone on the deed has not signed the note. This is because they understand that someone is on the deed but has not signed the mortgage, then that person could make a legal case that the lender does not have a legal right to take his/her ownership interest in the property away from him/her. If your name is on the title but not the note, your signing the mortgage means that the bank may still have claim to the house if there is a problem with payments.
Why would a homeowner not on the note agree to sign a mortgage, when he/she could lose a home through no fault of his/her own? Without such signatures, the lender could refuse to lend the money. Also, if the loan is paid in a timely manner, there is no risk to the homeowner not on the note.
Could someone get around this requirement by simply adding someone else to the deed after closing? Most, if not all lenders, have already taken measures to make sure this does not happen by adding an alienation clause to their loan documents. This clause requires that a note be paid off in its entirety prior to any transfer of title. If you own a house with a mortgage and note on it and then add someone to your title, then you may have broken the terms of your agreement and given your lender the right to demand payment in full. If you are unable to pay the outstanding loan balance in full (including inability to obtain another loan), the lender may have the right to foreclose on your home. Note that the U.S. government has provided exemptions to these types of alienation/due-on-sale provisions under certain circumstances, such as some transfers to a relative resulting from the death of a borrower and some transfers where the spouse or children of the borrower become an owner of the property.)
If a lender is threatening to foreclose your home -- regardless of whether you signed the note and/or mortgage -- a local attorney experienced in real estate law can explain and help you understand your options.
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