WHAT HAPPENS TO A MORTGAGE AFTER DIVORCE?
Figuring out what to do with a house that has a mortgage on it after divorce can be daunting. This is a question that comes up at a time when your life is probably in turmoil and the last thing you want to do is deal with a mortgage.
When it comes to the mortgage it can mean that the division of the equity in it has to be determined. Then it may mean trying to decide whether the home is to be sold or not. There may also be liabilities regarding the home that have to be dealt with.
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What are the Responsibilities for the Mortgage After Divorce?
Responsibilities for the mortgage after divorce are not something that most people deal with on a regular basis. It is understandable why there would be so many questions that arise pertaining to it.
One of the common questions is whether the house has to go through a sale so the equity can be divided. There is an alternative to this where one party can buy out the other. If this is the route that is taken, usually the spouse that is going to buy the home will have to go through a mortgage assumption so they can pay the other spouse their share of the equity.
What has to be decided quickly when it comes to dealing with the mortgage after divorce is who is going to be responsible for paying it.
Who Will Pay the Mortgage?
If the mortgage has been held jointly then legally both spouses are equally responsible for making payments. If the mortgage is not paid, the lender can come after both parties.
During the divorce agreement, it should be legally determined who is going to assume the mortgage payment responsibility. There are times where agreements are made between a couple to just transfer the title to the other partner. This can be done with a quit claim deed.
This means the party signing over their ownership will no longer have any claims to the property. That does not mean that the spouse giving up their rights to the property is no longer responsible for the mortgage after divorce.
To prevent this there has to be a transfer of liability. This can be done by the spouse who is taking ownership by taking on a mortgage assumption or arranging for a loan modification after divorce.
In most cases, the better route to take is to assume the mortgage which will then have the responsibility for paying it moved over to the spouse who is going to keep the house.
This will only work if the spouse applying for the mortgage assumption meets the criteria put in place by the mortgage lender. If this is the case then it may be possible to obtain a home equity loan for refinancing.
What if the Value of the Home is Lower Than the Mortgage?
Not every couple going through a divorce is going to make a profit from the sale of the home, and that selling it will clear off the mortgage. There are times where the value of the home is lower than the mortgage.
If the buyout partner cannot qualify for a loan modification after divorce or come up with other ways to buy the house then it creates a difficult situation.
What could possibly be arranged is putting off the buyout or selling the house. It means an agreement would have to be reached to this effect by the two spouses.
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