For many couples, real estate represents the most valuable and expensive asset that they own. Since the couple will no longer be living together in the same house, they must often reach some sort of decision regarding which party will receive the house.
Options Regarding Real Estate during Divorce
Prior to entering into a property settlement, the parties may consider a number of different options concerning their real estate, especially the marital home. One common option is to sell the home. After the mortgage is paid off, the couple may equally or otherwise fairly split any proceeds from the sale. In other cases, the parties may agree to provide certain real property to one spouse and compensate the other spouse with assets of similar value. One spouse may keep the primary residence, and the other may keep the vacation home.
In some cases, the primary custodian keeps the house and the other spouse agrees to this because he or she wants the children to benefit from the use of the house. However, if one spouse will keep the home, the other spouse usually requests to be removed from any financial liability associated with the house.
The spouse who will not have possession of the house will want the divorce decree to stipulate that he or she will not be responsible for making any mortgage payments or otherwise being financially obligated to the house. This can help with enforcement issues. However, a divorce decree does not have any authority over a third party debtor. Until the mortgage is refinanced or the home is sold, both parties remain financially liable for the property if both of their names are on the mortgage. However, if a spouse refuses to comply with the divorce decree, the other spouse may choose to have the decree enforced as a contract or by asking for him or her to be held in contempt.
Refinancing the Mortgage
In order to remove one of the spouses from the financial obligation to the property, the other spouse must usually get the mortgage refinanced. This usually requires going through the loan process and naming only the spouse in possession as the prospective debtor. If the other spouse is not removed from the mortgage, the lender can pursue collection from both or either spouse.
Refinancing requires that the new named borrower be able to meet the eligibility requirements set out by the lender. This often requires the spouse to demonstrate income and that he or she has adequate resources to afford the mortgage. A cosignor may be necessary if the spouse cannot qualify on his or her own.
Deeding the House
Once the refinance is approved, the other spouse’s name can be removed from the deed to the property and the mortgage. This is often completed by filing a quitclaim deed in which the spouse forfeits any right to the property. If the spouse has his or her name removed from the deed without refinancing having been secured, he or she can lose rights to the house but still remain obligated to the debt.
Assuming the Loan
In some situations, a person may be able to remove the other spouse from the mortgage without refinancing through assuming the loan. This may be a preferred option for someone who has the ability to pay the mortgage but does not want the added expense of going through a refinance. If approved, the lender allows one spouse to assume the debt for the couple so that the other one is let off the hook.
Continuing with the Mortgage
If refinancing or assuming the loan is not an option, the spouses may reach an agreement in which they both remain liable for the mortgage. However, if the spouse in possession of the property does not make the mortgage payment or makes late payments, the other spouse’s credit can be adversely affected.
In order to be approved for a new mortgage, the spouse who did not keep the property may be required to prove that the other spouse is responsible for the debt. This may include showing a court order to this effect, showing the refinance documents and/or submitting cancelled checks from the other spouse that shows that he or she is the one making the mortgage payments.
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