Understanding Your Divorce Mortgage Options
If 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 one spouse will be responsible for the mortgage, you need to realize that this won't remove your liability in the eyes of the lender. When the two of you signed the original mortgage papers, you both agreed to be jointly responsible for repaying the loan.
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.
It is best to utilize an ‘Owelty Lien’ to split the equity and refinancing the loan into the retaining spouse's name. This action is commonly utilized in divorces to “buying out” the remaining spouse's interest in a home. Read More About ‘Texas Owelty Liens.’
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.
As previously noted, 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/her, 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 may increase your debt to income ratio. You're better off trying some of the other divorce mortgage options below.
Sell the House
One of the easiest ways to remove your liability from the mortgage when getting divorced is by selling the marital home. The proceeds from the sale will first be used to pay off the existing mortgage, and anything that is left over after closing costs can then be split between you and your spouse. Generally, it's a good idea to sell the house before your 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 will be keeping the house, you need to have your spouse sign a quit claim deed relinquishing his rights to the house.
If your spouse is the one who will be keeping the home, it is very important that the mortgage be refinanced in their name only. As long as your name remains on the mortgage, you will continue to be liable for the mortgage payments should your ex default 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/she fails to refinance and subsequently defaults on the mortgage. After your divorce papers are signed and everything is finalized, you need to notify the mortgage lender of your security interest and request that they notify you at your current address of any missed payments.
If you have any other question or would like to discuss these options further, call Geni Manning or at 469-556-1185. We will put you in contact with one of our 'Certified Divorce Lending Specialists' who has worked with many divorcing couples over several decades.
"When it comes to any area of personal finance one must discern who has the talent to help them achieve their goals. One area people often overlook when blinded by someone's talent is their character and integrity. Geni Manning has been a powerhouse in the DFW Metroplex Real Estate Market for many years, but what puts her in an elite league in her field is very simple: Her level of integrity. It’s one thing to be talented at what you do, it’s an entirely different level when one has genuine care and love for the clients' they do business with, wanting what’s best for their well-being as if they were her close family. This is what separates someone with "just talent" from the very few that have the heart to coexist with that talent. That is the rarest commodity of all in this world we live in today! This is one admirable lady with very wise and discerning clients!"
- Shane Boldin – Director of Mortgage Lending at Sublime Financial * * * * *
