Written by Jonathan Breeden
In most of the divorces and separations we work on there is at least one mortgage and it is usually on the marital residence where the couple has lived. Let’s review the options you have for dealing with a mortgage after a divorce.
The first point to understand is that the two people who signed the mortgage remain legally obliged to repay the bank, regardless of whether they are still married, separated, or divorced. The acts of separation and divorce do not change the terms of the loan the bank made to the borrowers. If the bank is not paid it can and will foreclose on the property.
The courts have very limited power when it comes to mortgages as the Court cannot change any of the terms of the loan and is really limited to just ordering one side to pay it as part of the divorce.
Most couples during the separation process come to an agreement either verbally or in writing as to who is going to pay the mortgage while they figure out how to divide the property. The spouse who is not living in the home can pay the mortgage directly and get credit toward child support and alimony they may owe from a court if they can show that they made the payment in a timely manner.
For example, if the non-occupying spouse owes $2000 in child support to the occupying spouse and they are paying a $1500 mortgage, they would only owe $500 directly to the occupying spouse each month. We have seen courts agree to these types of agreements, but it’s important to note that each county and court is different. Ask your attorney before you assume how much you will owe in your mortgage or support arrangements.
When it comes to figuring out who is going to possess the property after the divorce the person taking physical possession of the house will almost certainly take the mortgage that goes with it. The person getting possession of the house will almost certainly have to pay half the equity in the home to the other spouse and refinance the loan solely into their name within 2 years of the date of divorce.
In the past, we have seen spouses make the mistake of taking a house in a divorce, one that they cannot afford. They end up putting themselves in significant financial harm. I know houses can be sentimental but please think about your financial situation before deciding to take the house. It is almost always better financially to sell the house and split the cash equity at closing.
Remember, the court is limited in its power over these mortgages that are legal contracts in their own right. The courts will rarely order the home refinanced. That’s why figuring out how to approach your mortgage is crucial to your divorce.
If both names remain on the mortgage, both parties are still legally responsible for payments. If your ex-spouse stops paying, the lender can pursue both of you for missed payments, potentially damaging your credit and leading to foreclosure. To avoid this, refinancing or selling the home is often the best solution.
No, a mortgage is a contract with the lender, and the only way to remove a borrower’s name is by refinancing the loan in one person’s name. Some lenders may allow an assumption of the loan, but this is uncommon and requires lender approval.
Even if your name is not on the deed, being on the mortgage means you are still responsible for loan payments. If your ex-spouse is the sole property owner but does not pay, you are still liable for the debt, which could impact your credit and financial stability. Consulting an attorney can help you understand your options.
If your name is still on a mortgage with your ex-spouse, it will count against your debt-to-income ratio when applying for a new loan. This can make qualifying for a mortgage on a new home more difficult unless you refinance or sell the current home.
Courts generally do not have the power to force a lender to refinance a mortgage. However, a judge can order a spouse to attempt refinancing within a specific time frame. If they fail to do so, the court may order the home to be sold.
If you are separated or thinking about separation and are not sure what your rights are regarding divorce, please give us a call. We are ready to help explore your situation and find a solution that works for you.
Call (919) 661-4970 or fill out our form to schedule your consultation.