Troubleshooting After Divorce: My Name Is Still on My Ex’s Mortgage.

Maybe your ex got your former home through your divorce. And maybe you thought it made sense to let your ex keep the loan — after all, the interest rate on it is great! And those are your kids living in the home… why make life harder for them by complicating the status of the mortgage?

So you wanted to be fair and kind, for the sake of the kids.

File it in the “no good deed goes unpunished” drawer, because now you need a home where the kids can visit you, and you can’t get the mortgage loan you’re applying for. Or you’d like to start a business, but can’t get startup financing. And that impacts your ability to support your kids.

Every time a company pulls a credit report — because you need to buy a vehicle, get a credit card, you name it — your ex’s mortgage debt appears on your profile and creditors want explanations. And they say your former home’s mortgage is keeping your debt-to-income ratio high.

Co-Borrowers Share Loan Repayment Responsibility—Even After Separation or Divorce.

When a couple buys a home as co-borrowing mortgage holders, both spouses will remain responsible for the loan as long as it exists. Even after separation or divorce of the parties.

If one of them receives the home through the divorce settlement, that spouse will become the sole owner. But presumably, both people signed the promissory note for the home loan. And as long as both names exist on the note, the two people are jointly and severally obliged to repay the lender. If you are in this position and your ex is supposed to repay some or all of what’s due monthly, but misses a payment, your credit could take a hit, too.  

No wonder most couples refinance, so that the one who keeps the home becomes solely responsible for the new mortgage. The prior loan, which belonged to both people, gets paid off in the process.

Very often, refinancing is a condition in the separation agreement or the divorce court’s order. The controlling document might say the transfer of the home to just one of the two co-owners is contingent on a loan release and refinancing.

Your divorce papers might also contain an indemnity clause, shielding you from any potential missteps by your ex. Check. And if the lender won’t release you, ask your divorce lawyer for assistance.

Workable Refinancing Options Exist.

Often, a divorce settlement or court order says your formerly co-owned home has to be refinanced by a specific date. Methods to get it done include these:

• A cash-out refinance lets an owner tap into home equity to buy out the other person. This could work if there’s a lot of built-up equity in the home. But it makes the loan debt higher — and the person who keeps the home needs enough solo income to cover it.

• A streamlined refinance is relatively easy and may help shave off some costly services, such as a new appraisal. It may be available if the two of you took out a government-backed mortgage.

Refinancing does means new closing costs, possibly up to 5% of the whole mortgage. And sometimes, it’s just not possible for the person who’s keeping the home to qualifying for a new, solo loan.

If Refinancing Isn’t Possible…

There are some alternatives. By showing the lender a divorce decree or settlement that states who is responsible for repaying the mortgage, you can have a conversation with a company representative and get a handle on your other options. For a few examples:

• Will your lender release you from the obligation? Some lenders will release the loan obligation of the ex who quitclaims the home to the other. It helps to request the lender’s guidance before quitclaiming your interest.

• Will your lender allow a mortgage loan assumption? This removes the ex-owner from the mortgage note. The terms and interest rate on the existing loan stay in place for the (now sole) borrower. There are fees for the assumption.

• Will your lender accept the couple’s separation as a basis for a loan modification? Lenders do charge a fee for a loan modification.

If these aren’t options, then it might be time to sell the home to resolve the mortgage debt. Consult your family lawyer and your tax pro for guidance. Some couples agree to promptly accept an appraiser’s evaluation, and take the first fair offer.

What If You Transfer the Deed, But Decide to Stay Named on the Mortgage?

When a couple breaks up, the two people must divide the assets in a fair and reasonable way between the two of them, under the supervision of the divorce court. A quitclaim deed is a simple way to transfer the property from two names to one.  

The quitclaim deed should be signed and notarized, and filed at the county deed recorder’s office. This makes the new, sole ownership a matter of public record.

Now, as noted above, the co-owner who quitclaims the home to an ex usually also insists on coming off the mortgage. This would mean the person who moved out will no longer be on the hook if their ex defaults on the loan repayments.

That said, some couples do leave both names on the mortgage even after divorce. This might occur in scenarios where both people (or one, plus the kids) remain in the house. Their settlement or divorce decree assigns payment responsibility, and the ex-partners follow their agreement.

But look out. At any point, one ex-partner could encounter financial difficulties that impact the other. Remember: Both are still responsible for a mortgage the couple jointly took out. The mortgage company considers them both responsible for repaying the debt even if one has come off the deed.

So, Here’s the Upshot.

The lender doesn’t focus on its borrowers’ divorces. It focuses on recouping its funds. So, if your name stays on the mortgage, a lender could sue you if your ex isn’t properly making repayments. If you have reason for concern, you or your advocate should communicate your position to the lender. Give the lender your updated address. Be sure you’re getting notifications of issues that impact your credit.

Your lawyer can let you know what further steps need to be taken, up to and including possible legal action to resolve the mortgage matter between you and your ex.

Stay fair and kind — while protecting your financial wellbeing.

Please note: The content of this website is not financial or legal advice. Seek professional advice for guidance as you resolve your mortgage during a divorce. Some deed holders will have options not covered here.