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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Loan Modification vs Mortgage Refinancing: What’s the Difference?

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Contrary to popular belief, comparing loan modifications and mortgage refinancing is like comparing apples and oranges. Although they both have the potential to be very, very good for you – many of their attributes are actually quite different.

If foreclosure feels imminent, or if you are just beginning to really struggle to make your monthly mortgage payment, it’s important to know your options. Foreclosure is absolutely not your only option.

Loan Modifications

If you have sought the help of an experienced loan modification attorney – congratulations! You’ve taken the first step toward making changes to your existing mortgage so that it once again becomes manageable. Although you can apply for a loan modification on your own, it is not advisable. Your NJ loan modification attorney will negotiate with your lender on your behalf.

Along with your attorney’s help, you’ll apply for a loan modification with your current mortgage lender or bank. Your lender will then review your application, and may negotiate with your attorney about which changes to your loan would make the most sense. Some common changes often made during loan modifications include: extending the length of the loan, lowering the principal amount due, one-time forgiveness of late fees, and possibly lowering the interest rate on the loan.

If approved, your loan modification will be awarded to you on a trial basis first. The trial period typically lasts for three to six months. Making all of your modified payments on time during your trial period is crucial, and if you succeed, the modifications will become permanent changes to your home loan.

Mortgage Refinancing

In contrast to loan modifications, refinancing your mortgage will result in a completely new loan. Your old mortgage will be null and void, and a new one will be generated in its place, with the goal of giving you a new, lower interest rate so that your monthly payments are much more manageable. Qualifying for a mortgage refinance means your credit will be checked again, as will your current income. You will essentially be applying for a loan all over again. If your credit score or job status has changed (for the worse) since you first applied for your original mortgage loan, your mortgage refinance application may be denied.

It is also important to note that you will have to pay origination fees and closing costs if your refinance goes through. You will need to have a home appraisal completed, and real estate market conditions will be rechecked to determine whether you should be awarded a lower interest rate in the current market.

As you can see, both a loan modification and a mortgage refinance have the end goal of making your monthly payments achievable so that you can stay in your home. To find out more about either process, or if your lender has already started foreclosure proceedings, send us a message today. Your first consultation is always free so that you can determine if our services are what you need.

Image credit: Frankieleon