What Happens to a Mortgage When a Couple Divorces?
When divorces happen in movies and on TV shows, usually one spouse walks away, leaving the home to the other. Problem solved. In real life, things aren’t that simple. Because divorce is such a life-changing event with ramifications across seemingly every aspect of life, it’s easy to assume it would also have an automatic and direct effect on a couple’s mortgage. However, that’s not necessarily the case.
A divorce signifies the legal uncoupling of two people as marriage mates. It does not signal the immediate end of a couple’s financial obligations. In other words, a mortgage lender is interested primarily in receiving the agreed-upon loan repayment or the property. The lender doesn’t necessarily care about your marriage status. If both spouses appear on the loan agreement as borrowers, the lender is within its legal right to demand payment from either party.
Lenders May Be Reluctant to Modify Your Mortgage
Divorced spouses might assume that they’re free of the mortgage debt if part of the negotiated divorce decree was to them from the mortgage loan, making the other spouse the sole property owner. However, lenders are often slow, if not negligent, in following through with a request to rewrite paperwork that would give full responsibility for the loan repayment to the agreed-upon spouse.
You may think that a lender’s reluctance to make changes is due to a spouse being financially qualified to shoulder the mortgage alone. Sadly, this is not the case. Divorcees report resistance from mortgage companies even when there is documented proof a lone spouse has the financial ability to pay the loan. The homeowner may have years of records showing that they paid their mortgage on time. They may also have a stellar credit rating and an above-average salary. Nevertheless, they’re still denied a speedy process to assume sole ownership.
If that spouse is under a court order to remove a former mate from the mortgage agreement, technically, the spouse could be found in violation of the court order if the mortgage company refuses to make the change. The Federal Consumer Financial Protection Bureau (CFPB) regularly receives reports that lenders accuse homeowners of presenting incomplete paperwork and information needed to remove a former spouse from a mortgage. But homeowners report that lenders often demand that they complete the same paperwork multiple times without resolution.
When homeowners ask for clarification, they often receive inadequate responses or silence. One homeowner told the CFPB that she sent roughly 30 emails to her lender, trying to get the mortgage in her name only, but was told that it would simply be easier to refinance. Of course, when a lender steers a homeowner toward refinancing it means more money for the lending institution and a higher expense for the homeowner.
The callous behavior of mortgage lenders can create more than financial and legal headaches. It can also pose mental and physical danger to a former spouse. For example, if a former spouse was the victim of abuse at the hands of their marriage mate, it may become extremely important that the abuser not have any further dealings with the victim. But if the mortgage company continues to treat the former spouses as equally responsible for the loan, it could continue to involve the abuser in the life of the victim by requesting approval of account changes from both people.
That’s what happened to a Texas woman who was awarded ownership of the house as part of her divorce from her abusive husband. The lender refused to acknowledge her rights and continued to send mortgage-related information only to her former husband, her abuser. According to her report, the lender refused to budge on the issue, and though she was prepared to assume the loan, the house went into foreclosure.
You Have the Right to Request a Modification of Your Mortgage
If you are going to become the sole homeowner after divorce, it’s important that you understand that the loan does not have to be revised in order for you to assume sole ownership. One of the tricks mortgage lenders use in divorce cases is to either state or imply that the loan needs to be refinanced at a higher interest rate. One homeowner lamented the prospect of losing the home and finding another place for her and her kids because she couldn’t afford to refinance as her mortgage company claimed she needed to do.
The federal government, by means of the CFPB, already has rules in place stating that mortgage lenders should process successor homeownership paperwork in a timely manner. Once again, it’s necessary to remember that many of these cases involve court orders with specific deadlines. So, the clock is ticking. It’s in the best interest of mortgage lenders to expedite paperwork to prevent their own customers from being in violation of a court order.
Federal guidelines are also supposed to protect homeowners from extravagant or unnecessary fees. Lenders may try to saddle homeowners with such fees, claiming that they are a standard part of the paperwork. However, the lender may be including some fees that are not allowed by the federal government, especially if the loan is through a Freddie Mac or Veterans Administration account.
It’s easy to assume that settling a mortgage in a divorce would be no more difficult than deciding who gets the furniture and who gets the silverware, but that’s not the case. Even when both parties agree on who should become the sole owner of the property, both can remain legally responsible for the mortgage long after the divorce due to the bad behavior of a mortgage lender. If you’re going through a divorce with property as part of the settlement, make sure you hire an experienced divorce lawyer like those at Davis & Associates who can oversee all the necessary paperwork so you can stand a better chance of either legally assuming ownership of the property or exercising your legal right to be removed from the mortgage loan.