For many divorcing couples, a big question is who gets the house. This question gets really sticky when there’s a mortgage on the home. What happens with the mortgage that is still in both spouses’ names? If you’re the one who does not get the house, how does that mortgage affect you in the future? What if your ex defaults on the mortgage that’s still in your name?
No Longer Married by Still Financially Hitched
Pennsylvania allows divorcing couples to request an equitable distribution of their marital assets. The marital home is often the largest asset to be divided. When there’s a mortgage on the home in both spouse’s names, the practicalities of dividing the house can be a problem. Why is this an issue you should be concerned about?
Until the mortgage is paid in full, if your name is on the mortgage, you are financially responsible for the loan. That’s true whether you live in the home or not. We see many separated or divorced couples with this unresolved problem. When you want out of a bad relationship or marriage, you may not be thinking about the many ways staying financially “hitched” to your Ex can be a problem for you.
Consider the Following Nightmare Situations:
Your Ex Defaults on the Mortgage
Can your ex afford the payments on the house? Do they have stable income? They may want the house but wanting and affording are two different things. Maybe they can afford it while receiving child support or alimony payments from you. What happens when those payments go away? What if they lose their job or have an addiction problem? What if they just hate you and want to ruin your credit? If they fall behind on (or simply refuse to pay) the mortgage, you may have no idea because default notices are sent to the home and not to you. Perhaps you’ll notice your credit score going down. You may not find out until you’re served with a mortgage foreclosure complaint and by then it may be too late to undo the damage. You could be left holding the bag for your Ex’s bad life choices or financial problems.
You Apply for a Mortgage for a New Home for Yourself
So long as your name is on the mortgage for your former house, the debt will be part of your credit history. Your payment obligation for that mortgage will be taken into consideration if you apply for a loan in the future, including the purchase of a new home. The old mortgage could prevent you from being approved for loans in the future. It may also make you a credit risk and increase the amount you have to pay for future loans.
You Want to Sell the House and Your Ex Won’t Cooperate
If you end up with the house and want to sell it in the future, it may be necessary for your Ex to sign off on the sale in order to convey clear title to a buyer. If your Ex refuses to cooperate (or you simply can’t find them), you may not be able to sell your house.
Dealing with a Mortgage Post Divorce or Separation
There are a variety of ways to deal with the problem, all of which have pros and cons. The one method that is always the wrong answer is doing nothing and hoping for the best. Here are a few common ways we see the issued addressed:
Taking Your Name off the Mortgage
The lender won’t do this just because you’re divorced/separated and no longer living in the home. It doesn’t happen unless the mortgage is refinanced and paid off.
Refinance the Mortgage
The best solution would be for the spouse remaining in the home to refinance the mortgage to take the other spouse’s name off the mortgage and pay that spouse their fair share of the home’s value. That’s often not a realistic option because the spouse retaining the house might not qualify for a new mortgage on their income only. The result is that although the relationship is over, the couple continues to be bound by their mutual financial obligation for the mortgage.
Sell the House
This is another option that could solve the financial problem but is often not chosen. It could be that the house won’t sell for enough to pay the mortgage and closing costs. Maybe the house is where your kids live, and you don’t want them to be forced to leave the home. One of you may not be able to afford to buy another home or even put a deposit down for a lease. Maybe one of you simply refuses to cooperate with the sale.
Leave Both Names on the Deed
It may be tempting to keep your name on the deed if you’re going to remain responsible for the mortgage. For the person who takes over the house, know that so long as your ex’s name is on the deed, you will not be able to sell or transfer the house without your ex’s consent and participation. If you get remarried, you won’t be able to put your new spouse’s name on the deed. You can’t even convey it to your children. Your ex will continue to own a one-half interest in the property.
Include Terms in Your Divorce Agreement
This is the best option but too often we see wishy-washy provisions that are useless in the event a problem arises. If your Divorce Agreement, often called a Marital Settlement Agreement, simply says that your ex has the obligation to continue paying the mortgage with nothing else, that’s simply not good enough. The Agreement might require the spouse remaining in the house to have a life insurance policy sufficient to satisfy the mortgage in the event they die. It may require the remaining spouse to make specific efforts to refinance the mortgage. It should certainly include specific remedies in the event they default on the mortgage, including provision that would force them to sell the house, dictate sale prices that must be accepted and giving the non-resident spouse power of attorney to sign sale documents. The provisions need to be detailed and anticipate problems that are likely to occur.
Contact Our Divorce and Separation Lawyers for Assistance
If you are thinking about divorce or you’re unmarried and own a home and are considering an end to your relationship, we can explain your rights and the next steps. Contact Fiffik Law Group to schedule a consultation to discuss your rights.