Mortgaging Your Post-Divorce Future
If you’re going through a divorce, many people could get involved and provide you support. You hire an attorney and you work with the law firm’s staff. You’ll be able to rely on family and friends. Many people will care about your divorce. One group of people who couldn’t care less are those working for the company holding your mortgage. If you and your spouse are responsible for paying a mortgage, a divorce won’t change that. You can get married and divorced as often as you’d like. If the two of you signed up for that mortgage, the two of you are responsible for paying it.
If you are getting divorced, mortgage issues need to be addressed. A divorce decree stating your spouse will be responsible for paying off the mortgage has no legal impact on the lender. When the mortgage papers were signed, the two of you agreed to be held jointly responsible for repaying the loan. That means the two of you, or either of you, can be held liable for the loan.
These are your options for addressing this issue…
- Retain the Original Mortgage
This option has the most risks. Often those who don’t retain competent attorneys to help them with the divorce, or try a do it yourself divorce, end up going this route. The parties agree one spouse will live in the property and he or she promises to make payments. The mortgage isn’t changed. This agreement between the parties may have seemed to make sense at the time. The spouse had a good job and the children, with enough stress in their lives, didn’t want to move. Things can change. Maybe the spouse lost his or her job, or changed his or her mind and decided the other spouse should start paying too.
Both parties could leave the home and rent it, in the hopes the rent will at least pay the mortgage and other expenses (maybe even turn a profit). The demand for rental properties is generally up and this may allow some time for the real estate market to improve. On the down side, you’ll be in business with your ex-spouse and your disagreements may continue. What happens if you can’t agree on who should be a tenant? If repairs and maintenance are needed, who will pay for them?
If either scenario goes sour, this can result in a mortgage default, a foreclosure and wreck your credit rating. It will also keep you tied to the ex-spouse you went to all that trouble to divorce. Maybe you have fallen into this option because the housing market is so bad you can’t sell the house for a reasonable price. Perhaps there aren’t any mortgage companies willing to write a mortgage for either of you individually. Is this situation guaranteed to fail? No, but it does carry the most risks.
- Sell the House
On paper, this is the simplest way eliminate the mortgage and all the financial baggage that comes with it. Sell the house, use the proceeds to pay off the note and split whatever money is left over. When possible, get this done before the divorce is finalized. Hopefully, whatever differences you have with your spouse won’t prevent you from agreeing to a sales price. Once the home is sold and the mortgage paid, you don’t have to worry about continuing to make mortgage payments, maintaining the house, paying taxes or insurance.
The ability to sell a house for a reasonable price depends on a number of factors, most importantly how desirable your home is and the real estate market where you live. If your mortgage is “under water” the mortgage holder may or may not agree to a short sale.
- One Spouse Keeps the Home and Refinances the Mortgage
This may be a good option if the parties are in good enough financial shape. The spouse wanting the house buys out the other spouse’s equity share and refinances the mortgage in his or her own name. If you’re the one keeping the home, have your spouse sign a quit claim deed which relinquishes his or her ownership and rights to the property. If you’re not keeping the home, the new mortgage needs to be in the name of the other spouse only. If your name is on it, and your ex-spouse defaults, you may be held responsible for it.
This option assumes the spouse keeping the house has the resources to buy out the other and can qualify for a mortgage on his or her own.
- One Spouse Keeps the Home and Assumes the Mortgage
This can be done depending on the type of mortgage, the mortgage holder and the financial shape of the spouse staying in the home. Not all mortgages are assumable, so the first step is to read the mortgage paperwork or contact the mortgage holder.
If it is assumable, the process starts with the spouse keeping the home filling out paperwork. The lender will want to see that past payments have been paid on time and in full and will need proof the spouse will can afford the mortgage payments. The spouse keeping the house needs to sign an assumption agreement and a release of liability. The spouse leaving the home will need to sign a quit claim deed. The lender may ask for a copy of that and the divorce decree. If this is all approved by the lender, it may issue a release of liability to the spouse leaving the house.
This may be the way to go if the mortgage can be assumed and an added benefit is the fees to assume a mortgage should be lower than re-financing and getting a new mortgage.
Mortgages are but one of many financial issues a divorcing couple needs to resolve. These issues can be difficult to unwind, but it can be done with some research, planning and cooperation by both parties. If you have any questions about financial issues and divorce, contact our office.