Understanding Your Divorce Mortgage OptionsIf you are going through a divorce, mortgage issues need to be addressed and taken care of if the two of you own a home together. Even if your divorce decree states that your husband will be responsible for the mortgage, you need to realize that this won't remove your liability in the eyes of the lender. When you and your spouse signed the mortgage agreement, you both promised to be held responsible for it's payment. To remove this liability, the house will need to be sold or the mortgage will either need to be refinanced or assumed. You can also choose to maintain the mortgage the way it is, but this is a risky proposition. To help you understand what your options are, read the following ways to handle your divorce mortgage obligations. Retain the Original Mortgage Unfortunately, this is the option that many people unknowingly make when they get a divorce. In essence one spouse agrees to keep the home, but the mortgage isn't changed after the divorce is finalized. If this is your situation, realize that if your ex doesn't make the mortgage payments, it can ruin your credit if your ex defaults on the loan. Maybe you want to retain the co-ownership of the home and leave the original mortgage intact until the children are grown. Once the children are gone, the house can be sold and the proceeds can be split. To make this arrangement work, both you and your ex should be able to cooperate in such a way that the mortgage payments, taxes and upkeep are paid in a timely fashion. Like I said earlier, this is a risky proposition. First of all, do you really want to keep that closely tied to your ex. Secondly, if your ex has any future liens filed against him, they can be attached to your house. This ties up the title and makes it harder to sell the house. And finally, having an existing mortgage can make it difficult to qualify for a new mortgage because it will increase your debt to income ratio. You're better off trying some of the other divorce mortgage options below. Sell the House The easiest way to remove liability for a mortgage when going through a
divorce is to sell the marital home. The proceeds from the sale can be
used to pay off the existing mortgage, and anything that is left over after
closing costs can be split between you and your spouse. Generally, it's a
good idea to sell the house before the divorce is finalized to prevent future
opportunities to fight over the sales price. Plus, neither one of you will have to worry about the other not making mortgage payments,
maintaining the house, or paying taxes and insurance. One Spouse Keeps the Home and Refinances the Mortgage This is a common strategy when one spouse wants to keep the home. In this situation, the spouse who wants the house generally buys out the other spouse's equity share and refinances the mortgage into his or her own name. If you choose this option, you should have your spouse sign a quit claim deed to relinquish any rights that he has to the home. If your spouse is the one who will be keeping the home, it is very important that the mortgage be refinanced in his name only. As long as your name is on the mortgage, you will be liable for the mortgage payment if your ex defaults on the loan. If your divorce is not yet finalized and your ex will be keeping the home, it's a good idea to include language in your divorce decree that your spouse will refinance the home. Along with this, you should also have your spouse sign a Deed of Trust to Secure Assumption. This gives you the right to foreclose and take back ownership of the house if he doesn't refinance and subsequently defaults on the mortgage. After your divorce if finalized, you should notify the mortgage lender of your security interest and request that they notify you at your current address of any missed payments. One Spouse Keeps the Home and Assumes the Mortgage A divorce mortgage assumption might be an option if your bank will approve it, but you need to realize that not all mortgage loans are assumable. Therefore, the first thing to do is to contact your mortgage lender to see if they will allow you to assume the loan. If the bank will let you assume the loan, you start the process by filling out an assumption agreement and a release of liability. The lender will also need documentation to determine if you can pay the mortgage based solely on your own income. If you meet the lenders underwriting guidelines, you may also need to furnish a copy of your divorce decree and a copy of the quit claim deed. If the assumption is approved, the lender generally executes a release of liability to the other spouse. This can be a good option if your bank will allow the assumption and you have good terms on your existing mortgage. Even though there are assumption fees, they are usually much less than what it would cost to refinance the mortgage. Copyright 2007 by Tracy Achen, author of "Divorce 101: A Woman's Guide to Divorce" The following articles offer more information about divorce, mortgage options, and the marital home.
This column is not intended to take the place of professional advice, but rather to provide financial information about the various issues that arise in a divorce. For specific recommendations concerning your situation, you should retain an experienced certified divorce financial analyst who can answer your questions based on the details of your case. Home / Other
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