Divorce, Separation and Home Loans

Written By: David Reed
Friday, March 13, 2020

When two or more people apply for a mortgage to buy a home, each person who will live in the home and on the application agree to be responsible for the mortgage payments. The legal documents signed at the closing table have language that obligates each individual and what can happen if they stop paying. Essentially, non-payment means the lender has the right to take back the home via foreclosure and sell the property to settle the outstanding balance.

Lets look at a scenario where a couple gets married, applies for a mortgage and takes title as joint tenants. They live there, happily, for a few years and then later on the marriage begins to crumble. There are two types of crumbling, a separation and a divorce. There are also two types of separation, a legal and a verbal agreement. Lets consider the verbal agreement first.

As it >

In the meantime, the husband wants to buy another home and get financing on his own. Yet because theres an outstanding mortgage on the first home, his debt ratios are too high to qualify. He explains to the lender that he and his wife are separated and have agreed to split the mortgage payment. Unfortunately for him, that doesnt matter. The mortgage appears on his credit report and he originally agreed to pay it. There are also other debts jointly owned such as a car loan and some credit card debt. Those debts are also legally his. Not just half of them, but all of them.

Now lets look at a legal separation. This is a legal document signed by a judge that lays out who pays for what. Within the document, it clearly states that the wife is responsible for the entire mortgage payment while they will split the additional consumer debt. The husband applies for a mortgage and is told there are some other debts on the credit report that push his debt ratios too high. He provides a copy of his legal separation agreement that states the wife is responsible for the mortgage, not him. But the lender wasnt consulted about such an arrangement and wont let him off the note.nbsp;

A divorce runs much the same manner in most cases. The lender doesnt have any control about someones love life but does have some interest in getting paid each month. The divorce decree clearly states the wife is solely responsible for the mortgage payment, even though the mortgage still appears on his credit report. He is still not >

The wife agrees to pay the entire mortgage each month, but after a while shes having trouble keeping up with the payments. Soon, one of the payments is listed as more than 30 days past the due date. This late payment will also appear on the husbands credit report, even though their agreement states hes not responsible for the mortgage. Again, the lender isnt concerned about the marriage, just getting paid back. The only way to remove the husband from this responsibility is to get him off the note enti>

With real estate and marriage troubles, obviously legal counsel is involved. Just know that unless one party is completely removed from the existing note via a sale or refinance, theres still an obligation to pay.

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