Divorce and Secured Loans on Shared Ownership PropertyIf you are going through a divorce, and have secured loans on shared ownership property, there are a few things to consider. First of all, who will get the property? Next you need to consider whether the loan can be refinanced in one spouse's name. If it can't, your property may be repossessed if your spouse defaults on the loan. The following information from our financial advisor looks at some the the options a person has in this situation.
What happens if he defaults on a loan secured by our property? Cindi's Question: Several years ago, my husband took out a second loan to obtain money for his business. The loan is secured by approx 20 acres of property which is in both of our names. His credit is poor and he says he is unable to refinance to pay off the loan. He says that he wants the property to go to our 2 younger children rather than selling it. Would I be responsible for paying the debt if my name is not on the Note and is there anything I can do to ensure that he follows through with signing the property over to the children like he says? Timothy's Answer: Typically, banks require both parties to sign a loan that is secured by property that is jointly owned. Although you state the second loan is only in your husband’s name, it is secured by your community property. The creditor would have a right to seize your assets if the debt obligation is not satisfied. Therefore, it is highly likely the bank will not hesitate to sell your land if the payments are not made. If neither of you can afford to pay the loan, your best bet is to sell off enough property to cover your debt. My question to you is, why do you want to keep the property? Is your 20 acres of land a productive source of income or is it merely an expense (via the mortgage) with the hope of future appreciation? If you opt to transfer the property to your name, you will need to refinance the loan so it is no longer held in your joint names. Depending on your circumstances this may not be the best option. Think carefully when you consider the costs/benefits of holding the property. If the financial burden is too great, you may want to re-think your decision. » Return to top Am I liable for the equity loan if I didn't sign for it? Dee's Question: My husband took $180,000 out of the mortgage and left. If he doesn't pay, will I be responsible for this debt? Timothy's Answer: I am troubled by your husband’s declaration that he took $180,000 from your mortgage. If the liability was in both your names, you would have been asked to sign documents authorizing the cash withdrawal. The funds would be payable to you and your husband and could not be cashed without both your signatures. The only way your husband could take cash out of the mortgage would be if the liability was in his name only. If this is the case, he is legally obligated to make your mortgage payments. If he does not pay, the bank will pursue him legally. If he does not comply, the bank will have the right to initiate a foreclosure. » Return to top
Related Articles: Timothy McNamara is a certified divorce financial analyst, specializing in the financial issues that couples and individuals face when their marriage ends. Having gone through a divorce himself, he is passionate about helping people understand and manage the complicated financial issues divorcing couples often face. 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. WomansDivorce.com, Timothy McNamara, and Tracey Manzi disclaim any liability from any claim arising from any information contained in this column. This column is not a substitute for professional advice. Divorce
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