This is an issue that I think is relevant to most people going through divorces. I'd say the vast majority- 75% or greater- of people going through a divorce own home with their spouse. Even in today's world where it is more common to have your "own" bank accounts and financial life, separate and apart from your spouse, I would think that most of you reading this blog who own a home do so with a joint mortgage debt owed to a lender. If you pull up your credit report it will say that you owe money to a lending company and the same would be true of your spouse.
So, if you are considering divorce this is likely to be a major concern for you no matter if you want to keep the house or if you would just as soon have it sold to put all of the memories behind you. Attorneys will sometimes skate right over these important issues in favor of more pressing demands that relate to your children or immediate problems that are impacting your divorce. I can't say that I have never done this, or that there aren't immediate concerns that should be attended to, but to put the issue of your home mortgage on the back-burner is not wise.
The fact is that your family home is likely to be the single largest investment you will ever make- in terms of both time and money. Although the routine of mortgage payments and home-upkeep can cause us to take this for granted, you need to be sure that what you doing about your home in the divorce is sensical and wise from a long-term standpoint. Do not make mistakes that are both avoidable and negatively impactful.
Divorce is supposed to end your financial involvement with your spouse- right?
When your marriage starts to become more about liabilities than it does benefits, it may be time to start thinking about divorce. This is what I will tell people that are considering a divorce from their spouse. It is not an easy decision to come to, that of filing for divorce. I mention liabilities because there are emotional, financial and familial aspects of divorce that all need to be considered before taking the plunge and hiring a family law attorney.
The negative financial impacts of a divorce can be diverse. In some instances, your spouse may merely be spending too much money on people or things that are not beneficial to you or your spouse. Or, your spouse may be unable to work due to a disability brought about by bad habits. Finally, you may be in debt that has been caused by short-sighted decisions or in attempting to take the easy way out when it comes to solving general life problems.
Problems related to your ex-spouse and the home mortgage
A potential problem will arise in the divorce that relates to your home mortgage, if you and your attorney do not anticipate the problem and put into place some protections for you as your case comes to a close. Remember, just because you will be divorced from your spouse does not mean that their impact on your life comes to a close. The mortgage that you signed up for with him or her will live on until it is paid in full or foreclosures proceedings begin.
Let’s walk through a fairly common scenario to open up some dialogue regarding what can happen to your home mortgage after the divorce has completed. Say that your spouse is awarded your family home in the divorce. He is also responsible for paying the mortgage that currently bears both of your names. It was not easy for you to walk away from the house, but you have your children to be concerned with and do not have the income necessary to pay the mortgage as a single income earner.
Here is what you need to be aware of as your divorce winds down and the next phase of your life begins to come into focus. First of all, just because the judge in your case is about to make your divorce final does not mean that you do not bear any responsibility on the mortgage. If for some reason the mortgage does not have your name on it then you do not have to worry. It's not as if the mortgage company is going to go back and add your name, However, if you took that home loan out with your spouse and it bears your name as either the borrower or co-borrower you still owe on that loan whether you are married or not.
What your spouse defaulting on the home loan means to you and your future
What does this mean for you, ultimately? Well, foremost among the reasons why this is important is that if your spouse fails to make the mortgage payments on time and in full he runs the risk of having not only his credit harmed but having your credit harmed as well. The lender will report the fact that your mortgage hasn't been paid on time for the past couple of months. You can expect nasty letters to be sent to your spouse, but you as well. As long as your name is on the home loan you are responsible for payments being made or not made.
Your credit score, which impacts your ability to take out debt to pay for items, is affected by these factors. Do not be surprised that your spouse’s inability to pay the mortgage has just as much of a profound effect on your life as it does on theirs. Your plans to take out a mortgage on a new home for you and your children can be impacted if you won't be loaned money for a mortgage.
After a lengthy divorce, this is probably not the thing that you wanted to hear. Lenders are not super-excited about loaning people with an already existing mortgage even more hundreds of thousands of dollars. Throw in an alert that comes up when your mortgage is shown as not being current, and you can kiss any chance of getting a mortgage at a favorable interest rate goodbye.
A word of hope that I do need to mention is that I have not heard from any past clients that they have had trouble being loaned money to buy a house if their ex-spouse has paid on their old mortgage according to the payment schedule. Banks are willing to take some amount of risk when loaning you money, but there are limits even to when a bank can extend credit to you.
How do you get your name off a home mortgage after the divorce?
This is the million-dollar question. If you owe money on a mortgage before your divorce, you will also owe money on the mortgage after the divorce. A divorce does not do away with your lability on a loan. If you email a copy of your divorce decree to the lending company as proof that you no longer have any responsibility to pay that loan you will be told that this is not the case. So if your divorce decree doesn’t offer you any relief as far as paying the mortgage is concerned, what can you do to reduce your liability?
For one, your spouse can be ordered to refinance the mortgage by a certain date. Many final decrees of divorce will order your spouse to do so within 60 days of your divorce becoming final. Until you have transferred a deed to your spouse which gives him sole ownership of the property a refinance is not possible. The rub is that in a lot of situations your spouse will not be able to refinance due to their income being insufficient to qualify and not having the best credit history in the world, to boot. This should give you pause before you ever agree in a divorce to allow your spouse to keep the house after your divorce. A promise and even a court order that he will pay the mortgage would not make me sleep any easier at night.
The other thing that you can do is to work with your mortgage company and see what they have in place for situations like this. You and your spouse would not be the first people who came to them in a situation like this. They may have in place some sort of procedure that would eliminate any future liability that you have on the home mortgage but would be more feasible for your ex-spouse than a re-finance.
Finally, the best and most assured way to have liability under the mortgage removed from you after a divorce would just be to sell the house. Ultimately, a house is just a house. There is one on every corner. If you are concerned with your spouse’s ability to pay a mortgage after divorce, and you should be concerned, then this is one way to make sure that you are not responsible for his misdeeds. This is the route you would take if you do not want to have any vestige of the marriage still on your radar after the divorce. Sweep out the corners of your life, sell the house and move on with things.
Deeds of Trust to Secure Assumption
In your divorce, if your husband is awarded the house there is a simple exchange of documents that would occur between you and your spouse. You would sign over a special warranty deed to your spouse which transfers your share of the ownership in the home to him. As a result, he would own 100% of the property and you would now own 0%. Conversely, your spouse would sign over to you a document called a Deed of Trust to Secure Assumption. This document would allow you to foreclose upon the house if your spouse falls behind on the mortgage payments.
This should not be seen as the solution to all your problems. The reality of the situation is that your credit score will still be impacted by the missed payments on the loan by your spouse. Another thing is that you are likely not all that well versed in how to foreclose upon a home loan. By the time you figure out how to do it, and then actually get it done your credit score and history will have taken a beating. While far from perfect, though, this may be your best option to take as far as limiting your future liability under a home mortgage (other than selling it).
Pulling equity out of the family house after a divorce- tomorrow’s blog post topic
We have already discussed the easiest way to pull equity out of the house- selling it. You would take whatever money is left after the mortgage has been paid and divide that with your spouse according to the terms of your final decree of divorce. This way both of you would have the money you are entitled to under the order and would be able to move on with your lives without being encumbered by a home mortgage.
However, it may be the case that your home is not sold as a part of your divorce. If either you or your spouse remains in the family home after your divorce has completed, there will be some additional hoops that need to be jumped through to pull that equity out of the home. In tomorrow's blog post from the Law Office of Bryan Fagan, we will go over this topic in detail and explain how this process works.
Questions about the material contained in today’s blog post? Please contact the Law Office of Bryan Fagan
Thank you for your interest in today's blog post topic and our law office. If you have any questions about the material that you have read please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultations six days a week here in our office. These consultations are a great opportunity to learn more about your case and to receive feedback about your specific circumstances.