Divorcing Homeowners Have Mortgage Options to Consider
Homeowners facing a divorce have a wide variety of difficult matters to sort through as they separate and start new lives. If the couple owns a home together, mortgage and possession issues must be resolved.
The decisions made regarding a mortgage are crucial to long-term financial well-being. Even if your spouse is to get the house and accompanying mortgage payments in your divorce, you are still financially obligated to make sure those payments are made. When you signed the mortgage documents and loan papers, you both agreed to that obligation.
There are several mortgage options you should think about as you consider divorce; three of the most common include selling the house, transferring it to your spouse or refinancing.
Selling the Property
In good economic times, selling the house is one of the easiest ways to remove mortgage liability from both spouses. The proceeds of the sale pay off the loan and the couple splits whatever is left over.
In these situations it is best to sell the property before the divorce, enabling you to deal with disagreements over sale price or other details with your attorney before the divorce decree is issued.
In current economic conditions, property sales are not as desirable as they once were, since many couples find themselves “underwater” (owing more money on the mortgage then the house is valued at) and sales are not always quick or easy.
Many divorcing couples opt for a quitclaim deed. A quitclaim deed is similar to the transfers interest in a property from one person to another. With the assistance of a family law attorney, you file the notarized paperwork with the clerk’s office in the town or city where the property is located.
Even though you may have physically transferred the property to one spouse, mortgage liability may still exist, so be sure to talk to your lawyer about what financial obligations remain after either of these transactions.
Another option divorcing couples may consider is the refinancing of the loan into one spouse’s name only. In this transaction, it is typical that the spouse taking the house pays off the other spouse’s share of equity while refinancing the home into his or her name only.
Again, discuss this transaction with your divorce attorney. Some prefer that their clients sign quitclaim deeds when refinancing a home in order to eliminate the possibility of future mortgage obligations.
Assuming the Mortgage
This mortgage option is not used as often as the previous ones, though it can be attractive because fees for a mortgage assumption transaction can be significantly less than those for refinancing.
Some lenders are leery of the assumption transaction; not all mortgages are able to be “assumed”. Call your mortgage holder to find out if this option is available to you.
If it is an option open to you, the process begins with an assumption agreement and release of liability. The lender will require financial proof of the ability of the spouse assuming the loan to pay it off.
The divorcing couple may also need to provide a quitclaim agreement. The details of that agreement and other aspects of a mortgage which is able to be assumed are best discussed with an experienced divorce attorney who understands both divorce law and mortgage liability options.
Depending on your individual circumstances, a different solution may be the answer for you. It is best to talk to your divorce attorney before you make any financial transactions or decisions about what to do with jointly-owned property.