How to Transfer a Mortgage During a Divorce
By Beverly Bird
Keith Brofsky/Photodisc/Getty Images
As much as you might like to simply sign your name and walk away from your mortgage if your ex gets the house as part of your divorce, it's unlikely the lender will allow you to do so. Mortgages typically aren't transferable, at least not without a lot of red tape. You likely don't have to be locked into the obligation for life, however.
Your Ex Can Refinance
Refinancing is the most common way for spouses to transfer liability for a mortgage into one spouse's name after a divorce. Refinancing involves qualifying for a whole new mortgage that pays off the old one, and it may not be possible for your soon-to-be ex to do this if she doesn't have the necessary credit history and income. She can count alimony and child support as income under certain circumstances, but she may not actually begin receiving this until your divorce is final, and typically she must show some history of receiving timely payments.
An added complication arises if there's equity in the property – it's worth more than the mortgage loan against it. Courts consider this equity to be a marital asset. One way to buy out the property's equity is to refinance for more than the existing mortgage balance. Your ex could then make a cash payment to you at closing. This usually results in an increased mortgage payment, however, and she may not be able to handle the added expense on her own. If you have sufficient other marital property, she can give up an asset equal in value to your share of the equity.
Read More: Cash-Out Refinance Explanation for a Divorce
Some Mortgages are Assumable
If your ex can assume the existing mortgage, the arrangement comes close to transferring it into her sole name. Not all loans are assumable, however, although VA and some FHA loans generally are. Otherwise, the decision might come down to your lender. Your ex must apply to assume the mortgage, which is similar to applying for a refinance. If approved, she effectively assumes your share of the liability and your name is taken off the loan. The mortgage account remains the same, with the same interest rate and other terms.
Selling the Property
If the mortgage isn't assumable and your spouse can't refinance, the other way to remove your liability for the mortgage is to sell the property, paying the loan off with the sale proceeds. Your divorce decree does not bind your creditors – it's a lawsuit between you and your spouse and no one else. Therefore, your lender isn't obligated to look only to your ex for payment if she keeps the residence as part of your divorce. If she defaults on the payments, you're still responsible for them.
Living With the Mortgage
As a last resort, you might want to continue co-owning the property with your ex, even after your divorce is final. Your spouse might stay in the residence and take on responsibility for the mortgage. However, the open loan will still appear on your credit report and this could prevent you from qualifying for a new mortgage of your own. If your ex doesn't make the mortgage payments, your credit is marred just as hers is and you're just as liable for making the payments yourself. If your divorce isn't somewhat amicable, you could have a years-long nightmare on your hands, dealing and haggling with your ex over payments. This solution might only be worthwhile if you have children and don't want to make them move, and there's no other way to get the mortgage into your ex's sole name.
Beverly Bird is a practicing paralegal who has been writing professionally on legal subjects for over 30 years. She specializes in family law and estate law and has mediated family custody issues.