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Divorced But Still On The Home's Mortgage

Written by on Wednesday, 05 February 2014 2:13 pm
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Q. My ex-husband and I bought a house in 2000. We divorced in 2010, and pursuant to our divorce decree, he kept the house and I moved out. We both remarried last year. My new husband and I have a new mortgage on our home, after fighting to prove to the lender that my ex has the previous house.

I know my ex has changed something on his mortgage. He was making higher payments for a year after he fell behind a couple of months. I really don't know the details because I no longer own the house.

Is there anything I can do to get my name removed from the mortgage so that my ex's late mortgage payments do not affect my credit? I have excellent credit and have written to the credit bureaus, but his late payments keep showing up on my reports.

A. This is a common problem, largely caused by divorce lawyers who do not understand real estate and mortgage law.

As is often the case, you transferred ownership of the house to your former husband, but you remain legally obligated to make the mortgage payments.

That's because when you and your ex-husband bought the house, you both signed two legal documents: a promissory note and a deed of trust.

The note is an IOU. The two of you - jointly and severally - agreed to make the monthly mortgage payments. "Jointly and severally" means that each of you are fully responsible for meeting the terms and conditions of the note. And one of the conditions is that you must make the payments on time every month or both of you will be in default.

You also signed a deed of trust, which in some states is called a mortgage. It is recorded among the land records where your property is located. It is the security that the lender needs to extend you the mortgage loan.

You both deeded the property to a trustee selected by your lender, who holds the property in trust. That means that if you ultimately pay off the mortgage, the trustee will release the deed of trust. If you and your ex-husband go into default, the lender has the right to tell the trustee to foreclose on your property.

Although you are no longer married to your ex-husband, your name is still on the note and the original deed of trust remains in place.

The bottom line is that your divorce lawyer should have required that your ex-husband refinance the existing mortgage within a set time.

Divorce and Real EstateAppropriate enforcement mechanisms should have been included in your separation agreement, such as requiring that the house be sold if it couldn't be refinanced. If your ex-husband refinances the house, that would completely relieve you from any further obligations under that old promissory note.

So how did you manage to get a loan for the house where you live now, even though you're still legally tied to that other mortgage? Lenders will show a degree of flexibility, because your situation is not unique.

One banker told me that his bank has procedures for dealing with post-divorce cases such as yours. The bank won't count that previous debt against the applicant if, "there is a judicial decree stating that the old mortgage is no longer the responsibility of the applicant, and we see that the old mortgage has been paid by the ex for a period of 12 months."

The banker said, "We must have the actual divorce decree and either get 12 months cancelled checks or a letter from the mortgage company that services the old mortgage."

However, it is often difficult to get that information from mortgage companies, because they often do not know who sends in the check. And with electronic and automatic payments, this becomes almost impossible.

Given that your divorce did not require that your ex-husband refinance the house, what should you do now?

First, because you are still on the mortgage, you have the right to know whether it is being paid on time. If you learn that your ex-husband is paying late or not at all, you should immediately write to all three major credit reporting bureaus. Explain that you are no longer the property owner, that your ex-husband is required to make the payments and that his lateness should not hurt your credit.

Second, if you want to refinance your current home, or buy a different one, you should seek a lender that understands these situations and is willing to work with you.

However, as the Banker made it clear, if you can't get the divorce decree and the documentation showing that the loan has become your ex's responsibility, things become more complicated. "Then we do need to consider the old mortgage into the debt-to-income ratios, and that can make a substantial difference in terms of qualification," he said. Lenders will review each loan application on a case-by-case basis.

These are unnecessary complications that should be headed off in advance. Couples who are divorcing should address this issue during the process, instead of waiting until it is too late.

There is yet another obstacle. In most states, if property is transferred between husband and wife, there is generally no recordation or transfer tax to pay. But once the parties are divorced, if there is a transfer between the parties, the local recorder of deeds will require that those taxes be paid - and in some states, (depending on the value of the property) that can be a hefty fee.

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  About the author, Benny L. Kass

6 comments

  • Comment Link Karen Tuesday, 08 April 2014 1:35 pm posted by Karen

    I'm having a problem with an ex too, we had a mortgage together we got divorced and I gave him £10,000 to get his name off the deeds so I could stay there with our daughter, now he's saying he wants his name off the mortgage as he want a house with his new wife and can't get one as his name is already on one mortgage does anybody no if this is true, thanks

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  • Comment Link Gerret Qumey Monday, 10 February 2014 11:24 pm posted by Gerret Qumey

    The same situation was faced by me in last summer. My lawyer advice me to have a agreement signed between me and my ex. Agreement says that we both have the ownership of the house, mortgage price had to be paid by the two.

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  • Comment Link Christine Volz Friday, 07 February 2014 4:08 pm posted by Christine Volz

    Helpful article- I recently came across a divorcing couple where the one that kept the home, did not end up doing a full refinance--and did a "Novation" or transfer of obligation from two parties to one party. This was less costly, keeping existing interest rate, and remained at the same servicer (Bank).

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  • Comment Link EJ Parker Thursday, 06 February 2014 11:13 am posted by EJ Parker

    Excellent article written in very understandable language. Kudos to the author!

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  • Comment Link jea Rowe Thursday, 06 February 2014 10:12 am posted by jea Rowe

    In the real world there a several reasons a refi would be difficult if not possible for the party given the house. If the original loan is at a lower interest rate then what is currently available and only has a few years left until pay off. A new loan in current market conditions could be impossible for a newly divorced person to obtain.

    I have never had an issue with lenders not accepting a copy of the property settlement to determine who is responsible for the mortgage.

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  • Comment Link Joan Rogliano Thursday, 06 February 2014 8:31 am posted by Joan Rogliano

    Thank you Benny for the truly valuable information. I work with a lot of divorcing clients and have never heard of a lender discounting anyone from responsibility for a mortgage, even with a final decree. The best solution is to have the party who is retaining the home refinance the mortgage, which is cleaner for all parties. It has been my experience that most attorneys don't understand this and leave their clients vulnerable and incurring post decree legal bills.

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