Things you should know about your mortgage and divorce.
Lender May Not Release Spouse from Liability on the Mortgage After Divorce is Final
Often mortgage companies base their loan qualification on dual income of the parties. Because the loan was based on both parties’ income, one or the other may not qualify for the note alone. Many mortgage companies will not release a party from liability on the mortgage, even if the divorce decree makes the other party liable. Texas family courts cannot force a lender to release a party. Therefore, both still end up liable on the mortgage for a house when only one party actually owns the property.
Options for Divorcing Couples with a House
One solution is to sell the house and split the proceeds if there is any equity. On paper, this is the simplest route to take. It is the only option if one part wishes to be “off the loan” and the lender is unwilling to refinance to the other party alone.
Although this sounds simple, there are factors to consider: 1) The real estate market may dictate that it is not a good time to sell; 2) The parties may want the children to be able to stay in home they know; 3) One party may be able to afford and want to stay in the home.
A second solution is for the party who is staying in the house to refinance the house. If the spouse who keeps the house does not qualify alone, it may be possible to obtain a co-signer. This achieves getting the other person off the loan.
If you cannot refinance and do not want to sell your home, your divorce lawyer can prepare deeds for you.
Special Warranty Deed for Spouse Keeping the Home
A second solution is to provide the parties with two separate “deed” documents. The first document, given to the party who is keeping the house, is called a Special Warranty Deed. The second document, for the party giving up the house, is called a Deed of Trust to Secure Assumption.
The Special Warranty Deed allows the party giving up title to the house (Grantor) to assign all legal title in the house to the party receiving the property (Grantee). The Special Warranty Deed grants the Grantee any and all interest in the property that the Grantor had. At this point, the Grantor no longer has any legal interest or ownership in the property.
If you are the Grantor, bear in mind that the Special Warranty Deed does not change your obligation to the mortgage company. If you are still on the note, you are still liable for the payments unless the mortgage lender allows a refinance or is willing to take you off the loan.
Deed of Trust to Secure Assumption for Spouse Giving Up the Home
So, how do you know that the Grantee will make the payments on the mortgage? You don’t; things happen. That is where the Deed of Trust to Secure Assumption enters the picture. Basically, if the Grantee fails to repay the mortgage lender or the Grantor, the Grantor can foreclose on the property. The Grantor is just like any other creditor.
Generally, the party who is keeping the house agrees to pay the house note. If they do not make the payments, the Deed of Trust to Secure Assumption lets the Grantor step back in. He/she can take over payment on the debt to protect his/her interest in the home. If the Grantor has to pay the lender for any of the debt that Grantee assumes, then Grantee must repay Grantor for all of those expenses, plus any attorney’s fees and other costs that the Grantor pays. You should note that collecting from a person who cannot afford to pay their mortgage is not an easy task.
Still In Business with Ex after Divorce
Although these deeds serve as a mechanism allowing one party to keep the home, both parties need to be fully aware of the ramifications. In particular, the Grantor needs to understand that: 1) he/she is still on the note and it will show up as a debt on his/her credit report. Depending on other assets and income, this can affect your ability to purchase another home; 2) he/she is still liable for the debt in the eyes of the mortgage company. If the other party does not pay, the mortgage company will expect you to pay; 3) he/she is still tied to the other party until the loan is paid in full, which could be a long time; If you are only two years into a 30 year mortgage, you have 28 years left to pay off your home loan.
In short, as the Grantor, you are responsible for the house even though you no longer have an interest in the house. As the Grantee, your ex will be checking up on you to make sure you are paying the mortgage on time.
You will technically be “in business” with your former spouse until the mortgage is paid in full. As with any business venture, be sure your partner is sound financially or be willing to make up any deficiency. Make sure your partner is someone you can work with over the long haul. Since you are getting a divorce, do you really want to remain business partners?
“In a decree of divorce or annulment, the court shall order a division of the estate of the parties in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage.”https://statutes.capitol.texas.gov/Docs/FA/htm/FA.7.htm
Depending on the amount of property available to award in a final decree of divorce, the Judge may award one spouse the residence and make that spouse responsible for the note, or mortgage, on the house.
So, what can you do to minimize your liabilities and maximize your assets in your divorce?
For more information on mortgage and divorce
contact a family law expert. Call today — Board Certified Family Law. Fort Worth Divorce Attorney Bob Leonard, Jr. of the Bob Leonard Law Group, PLLC.
About The Author: Sydney Campbell Leonard