Divorce Gavel

Divorcing Your Mortgage 1

Many of the divorce cases nowadays are caused by financial issues. It doesn’t come as a surprise when after post-divorce couples fall behind mortgage and face foreclosure. Foreclosure is enough of a headache as it is. When it is complicated by issues pertinent to divorce, it can be more difficult to manage.

When a couple gets a divorce, it is not an uncommon move to transfer the interest for the house to the other spouse. Usually, they do this thinking that this will place the responsibility for the mortgage completely on the other spouse. However, it just doesn’t work that way. When the mortgage is originally listed under both names, both spouses are responsible in making sure the mortgage gets paid. Even if you transfer the property to your ex, the bank won’t care about that. All the bank cares about is getting the mortgage paid off.

Transferring the house to your spouse might even become a bigger financial burden. If your ex would let the mortgage go unpaid after the transfer, and it won’t be just his/her credit that would be affected, but yours as well. There is even a possibility that you would face a deficiency judgement. A deficiency judgement will order you to pay the difference between the mortgage you owe and the price the house was sold at foreclosure. It is now common to face foreclosure after a divorce even for a home you don’t own or live in.

Divorce is not the only step you need to take to get rid of financial burdens and responsibility associated with the mortgage.

Solution for a Happy Ever after

It might be a challenge but both spouses will have to work together to avoid a financial disaster and foreclosure. There are various options available to keep this financial issue from ballooning into something more difficult.

You can either choose from the following potential solutions:

  1. Assumption – if you decide that one of you will have to stay in the property, that spouse should be able to assume the mortgage. Assumption means taking all the responsibility related to the mortgage. This also means that the other spouse will be freed from all financial responsibilities, liability and even in the event of a foreclosure.
  2. Refinance – Refinance is also one way to remove the other spouse from responsibility. However, the spouse who will apply for refinancing will have to use his/her own credit and funds during the application.
  3. Loan Modification – when the divorce has been finalized, the bank may be able to grant a loan modification. If loan modification is granted, the other spouse can be removed from the mortgage and responsibilities. However, this totally depends on the bank. Some banks may not be willing to release the other spouse without refinancing.

Preparing for the Worst

If you find yourself in this situation, it would be best to hope for the best but expect and prepare for the worst. There will always be a possibility that your plans will not work out. If you will create any agreement, there should be a time limit. For instance, if the other spouse still hasn’t been removed from the mortgage within one year after the divorce, the house should be sold.

Despite all of these preparations, separating financial responsibility and liability during a divorce can still be a challenging process. Proper steps will have to be taken to protect the best interests of each spouse. It will be best to seek the advice of a skilled attorney to make the most of the available options. Working with an experienced attorney will also prevent unexpected issues that may come up in the future. This way, it will be possible to achieve an amicable separation and satisfying results.

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Mr. Hutton is a Divorce and Custody Lawyer based out of Round Rock, TX. His background is with child psychology at Arizona State University where he received a B.S. in 2006, and he continued this by working with the Children’s Right’s Clinic at the University of Texas School of Law where he received his J.D. in 2009. Throughout his practice, he has been a strong proponent of utilizing modern technology to improve his practice and the representation of his clients. He currently is the technology chair of CAFA of Travis County and is committed to improving and modernizing the practice of law in Texas. If you have any questions you can contact him at timothy.hutton@austintexaslegal.com