Divorce and Your Mortgage: The Dirty Little Secret

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No one goes into a marriage hoping to get divorced one day. Unfortunately, many married couples just don’t make it ’til death does them part’ – rather, they end up parting ways, and all of their assets have to get divorced, too.

When any couple decides to divorce, part of the process involves negotiating what is called a Property Settlement Agreement – often referred to simply as the PSA. This agreement can be set up by the divorcing parties themselves if they agree on everything to be divided. Parties who do not see eye to eye draw up their PSA through their respective divorce attorneys. Regardless of how it was generated, all Property Settlement Agreements must be approved by the court in order to be considered enforceable.

During the course of a divorce, emotions typically run high, and for many couples, getting through the negotiations of “who gets what” can be trying. Thus, many people rush through the PSA negotiations, signing off on the agreement without fully understanding what it entails.

There are many portions of the Property Settlement Agreement that will be cut and dry, easy to understand, and without complications. The PSA essentially lays out what property (both marital and separate) shall be distributed to which party. To be clear: marital property includes anything that was purchased by either spouse during the course of the marriage. These assets may have been bought by one spouse or both spouses together. Separate property would have been purchased by one of the parties prior to getting married.

One of the main items for consideration in a divorce is the marital home. If the home is not sold and its equity divided, its ownership will be granted to one party or the other. The spouse receiving the house then takes over the mortgage payments on his or her own, and, according to the PSA, is the sole owner of the home. This is one portion of the Property Settlement Agreement that is fraught with misunderstanding.

Unfortunately, your mortgage company was not privy to, nor does it care one iota about, your divorce agreement. Lenders only care about who was originally approved and signed for the loan. With married couples, this often means that the lender considered the income of both parties when approving them for a home loan. What that also means, is that both parties will remain liable for the loan – whether they remain married or not.

Subsequent to a divorce, the party who was granted ownership of the marital home may wish to refinance the mortgage. Upon making inquiries about doing so, s/he will then realize that both parties’ names are still on the mortgage, and that making any changes to the loan will in fact require the cooperation of both people. As you can imagine, this discovery is quite distressing to divorced couples who believed they had officially ‘moved on’ from the marriage.

Many people who find themselves in this position want to simply remove their ex-spouse’s name from the mortgage, however, lenders are not keen on this idea. Although it seemed you were granted sole possession of the home in your divorce agreement, your lender is not controlled by divorce court. When they granted you the loan, they took both of your incomes and credit histories into account in order to be sure that the loan would be repaid. From their point of view, it wouldn’t be prudent to simply excuse one of you from the terms that you agreed to when you first bought your home.

Although you may have thrown your hands in the air wondering what you can possibly do to finally and completely separate yourself from your former spouse – there are solutions to this problem. Although they are not simple, there are ways around this ‘dirty little secret’ that everyone failed to mention at the time of your PSA negotiation.

In order to essentially ‘remove’ your ex-spouse’s name from the mortgage, you will have to completely refinance your loan. This will result in a completely new mortgage with only your name on it. In order to refinance in this manner, you’ll have to be able to qualify for the loan on your own – so your income, credit score and financial history will all be reviewed by the mortgage company.

If you’ve found yourself in a similar situation and aren’t sure if you’d be approved to assume the mortgage on your own, work with an experienced attorney who knows mortgage refinance like the back of his hand. To find out if you would qualify for a mortgage refinance, or if you have other real estate questions after your divorce, send Veitengruber Law a message today. We offer free initial consultations. Please utilize all of the free information available to you through our law blog, and follow us on Facebook for regular legal tips and financial advice.

 Image credit: Derek Finch

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3 Responses to Divorce and Your Mortgage: The Dirty Little Secret

  1. Pingback: How Can I Remain Financially Stable After a Divorce? | Veitengruber Law

  2. Pingback: Home Sellers Series – Divorce and Your Mortgage: The Dirty Little Secret | Gary Venice's East Tennessee Real Estate Blog

  3. Pingback: How to Keep Your Home After a Divorce | Veitengruber Law

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