How to Transfer a Mortgage During a Divorce

By Beverly Bird

As much as you might like to simply sign your name and walk away from your mortgage if your ex gets the house as part of your divorce, it's unlikely the lender will allow you to do so. Mortgages typically aren't transferable, at least not without a lot of red tape. You likely don't have to be locked into the obligation for life, however.

As much as you might like to simply sign your name and walk away from your mortgage if your ex gets the house as part of your divorce, it's unlikely the lender will allow you to do so. Mortgages typically aren't transferable, at least not without a lot of red tape. You likely don't have to be locked into the obligation for life, however.

Your Ex Can Refinance

Refinancing is the most common way for spouses to transfer liability for a mortgage into one spouse's name after a divorce. Refinancing involves qualifying for a whole new mortgage that pays off the old one, and it may not be possible for your soon-to-be ex to do this if she doesn't have the necessary credit history and income. She can count alimony and child support as income under certain circumstances, but she may not actually begin receiving this until your divorce is final, and typically she must show some history of receiving timely payments. An added complication arises if there's equity in the property – it's worth more than the mortgage loan against it. Courts consider this equity to be a marital asset. One way to buy out the property's equity is to refinance for more than the existing mortgage balance. Your ex could then make a cash payment to you at closing. This usually results in an increased mortgage payment, however, and she may not be able to handle the added expense on her own. If you have sufficient other marital property, she can give up an asset equal in value to your share of the equity.

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Some Mortgages are Assumable

If your ex can assume the existing mortgage, the arrangement comes close to transferring it into her sole name. Not all loans are assumable, however, although VA and some FHA loans generally are. Otherwise, the decision might come down to your lender. Your ex must apply to assume the mortgage, which is similar to applying for a refinance. If approved, she effectively assumes your share of the liability and your name is taken off the loan. The mortgage account remains the same, with the same interest rate and other terms.

Selling the Property

If the mortgage isn't assumable and your spouse can't refinance, the other way to remove your liability for the mortgage is to sell the property, paying the loan off with the sale proceeds. Your divorce decree does not bind your creditors – it's a lawsuit between you and your spouse and no one else. Therefore, your lender isn't obligated to look only to your ex for payment if she keeps the residence as part of your divorce. If she defaults on the payments, you're still responsible for them.

Living With the Mortgage

As a last resort, you might want to continue co-owning the property with your ex, even after your divorce is final. Your spouse might stay in the residence and take on responsibility for the mortgage. However, the open loan will still appear on your credit report and this could prevent you from qualifying for a new mortgage of your own. If your ex doesn't make the mortgage payments, your credit is marred just as hers is and you're just as liable for making the payments yourself. If your divorce isn't somewhat amicable, you could have a years-long nightmare on your hands, dealing and haggling with your ex over payments. This solution might only be worthwhile if you have children and don't want to make them move, and there's no other way to get the mortgage into your ex's sole name.

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How to Remove the Responsibility for Mortgage Payments in a California Divorce

References

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In a perfect world, you’d be able to time your divorce to get the most out of your real estate investment. In reality, that doesn’t always happen. The marital home is usually a couple’s most significant asset. When neither spouse is willing nor able to buy out the other’s equity interest, they must usually sell. This can cause problems in an unfavorable market.

What If the House Won't Sell During a Divorce?

There's no legal requirement that you can't receive a divorce until your home sells. However, a depressed real estate market can certainly make it difficult for spouses to end their marriage and move on. If you just can't find a buyer, you may have to get creative. You have options, but not all of them are attractive.

Does a Divorce Settlement Require a Refinance on an Upside Down Mortgage?

An upside down or underwater mortgage is one in which the homeowner owes more to his mortgage lender than the house is worth. Typically, such a mortgage happens when the homeowner buys his house in a healthy real estate market that later takes a downturn. When a divorcing couple owns their home subject to such a mortgage, getting rid of the debt can be difficult, and the divorce settlement can require one spouse to refinance the mortgage as part of the divorce.

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