Homeowners who are going through a divorce have a lot of things that need to be taken care of before they separate. If both husband and wife are on a home mortgage together, than the home and loan issues need to be addressed right away. Even if in your divorce decree it says that the other spouse is to take care of the home and mortgage payments, it is crucial that you realize that this will not remove your liability from the obligation. When you both agreed to the mortgage and signed the loan documents, you both agreed to be held responsible for the repayment of the loan.
To remove one spouses liability from the mortgage, the property will either need to be sold, transferred/deeded or the mortgage refinanced or assumed. One can always choose to keep themselves on the mortgage, but this is a risky position if the other spouse happens to default on the loan. In this article we will briefly help you understand your options during these hard times.
Quitclaim Deed or Interspousal Transfer Grant Deed:
A quitclaim deed is a document that transfers any interest in a property from one person to another another person. A quitclaim deed can be utilized to transfer a home from one spouse to another, but an interspousal transfer deed may be better for this type of situation. But please keep in mind that they both cannot release your mortgage debt obligations on the home. A quit claim deed may prevent an ex’s heirs from claiming his shares after his death which can be avoided through an interspousal transfer deed.
A interspousal transfer grant may be the best option in a divorce situation. This makes it simple to transfer property from one spouse to another and also to change community property into separate property. The process is similar to that of a quit claim deed. You will need to sign these together with a notary and you may want to get the assistance of an attorney to make sure it is filled out correctly.
In the case of a Interspousal transfer deed, you can add your spouse to the deed later by going to your county recorders office and adding them on title.
But please keep in mind, that once you all sign the deed, this does not get rid of your mortgage contract. You are still obligated to pay by law.
Sell the Property
Generally, one of the easiest and most effective ways to get both spouses name off the mortgage and to remove liability from the debt is to sell the home. You can use the sale to help pay off the existing mortgage, and any left over proceeds can be split between both parties. It may be a better option to attempt to sell the home before the divorce is complete to help avoid any future problems over the sale price. Additionally, this benefits both parties because neither will have to worry about the other spouse managing the monthly payments, maintaining the household, or paying property taxes and insurance.
One spouse refinances the home into their name only
Having one spouse refinance the mortgage into their name only is another very effective way to remove one’s liability from the mortgage. During this event, usually the spouse that wants to keep the property will pay off the other spouse’s equity share while refinancing the loan into solely their name. Many professionals suggest signing a quit claim deed to extinguish any rights the other party has to the home.
It is crucial that you make sure the home is only refinanced into one spouses name. This will ensure that the spouse who did not keep the home is safe in the event of a default or foreclosure on the property.
If you divorce is not yet complete and you have already decided who will be keeping the property, its a good idea to include in your divorce decree who will be refinancing the mortgage. This way you can prove that both parties have came to an agreement as to who will be taking over the home and mortgage payments.
One spouse assumes the mortgage
A divorce mortgage assumption is one option that is not brought up all that often. One main reason why is because not all mortgages are assumable, and even if they are, many mortgage lenders tend to be hesitant to do so. Therefore, your only way to find out is to call your lender and see is this option is open.
If the mortgage lender will allow one party to assume the loan, you will begin the process by completing an assumption agreement and a release of liability. The bank will also require your financial documentation to determine whether or not the mortgage can be handled based off one borrower’s income. If you do meet the requirements, you may also have to provide a copy of your divorce decree and quit claim deed. Generally, if the assumption is approved one spouse will receive a release from liability.
For some homeowners going through a divorce an assumption may be a good option (if your loan allows you to do so). While there may be a few fees that come along with this event, they are usually much less than the fees that will come with refinancing the mortgage.
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