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In the beginning stages of a divorce, many couples make mistakes with regards to their mortgage that can ruin their ability to get another mortgage during or after the divorce. If you have decided a divorce or separation is happening, these are the things you need to do right away.

Mortgage Payments and Divorce

Who pays the mortgage during separation?

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It doesn’t matter which one of you moves out of your home, you are both responsible for the mortgage payments if you are both on the mortgage note.

hand shake

And by responsible, I don’t mean each of you has to pay half of the payment. I mean if it does not get paid or paid late, both parties on the note get their credit hurt.

Sit down and decide who will pay the mortgage payment or if you are both going to contribute to the payment, how much each will pay. No one can tell you who is responsible. You have to decide between the two of you.

That agreement will be included in your separation agreement which will have to be signed off on by a judge. But what do you do before that? When divorce is inevitable, one of you has to go right?

Decide on who pays the mortgage before you go. If you decide the person staying in the home will be responsible for the mortgage payment, then that is fine but just know your credit could be decimated if they stop paying. Until you sell or refinance, you are still on the hook for that payment.

Some people think a quit claim deed works…but it does not.

The quit claim takes you off title but it does not take you off the mortgage. And the mortgage is the one that hurts your credit should something happen.

It is a good idea to get a third party involved when it comes to the mortgage payments during this initial period. An escrow company takes in the money from you and/or your soon to be ex and sends the mortgage payment in on time. That way there is a record of the payment being made by a third party and neither of your credit histories will be hurt. And also you will know if the other person has not made the payment or their share (if that is what you decided). The escrow company can alert you they do not have the payment.

The choices at that point would be try to get it from your soon to be ex or get the escrow company the payment yourself so at least the payment can be made on time. This can be done with other debt on your credit report too. Car loans, credit cards, student loans, or any other installment loans.

It definitely can be a little ugly in the beginning of a divorce but do whatever necessary to protect your credit. And it won’t be forever. You will get through the court proceedings and then the final division of everything can take place.

house sold

The most common way to separate completely if both are of you are on the mortgage note is by selling or refinancing. If the wife wants to stay and she can afford the payments after the divorce, she has to refinance and take you off the mortgage.

I just read the most interesting article in The New York Times about real estate agents who specialize in working with clients in the middle of a divorce. I didn’t even think of this stuff so check it out!

However, an assumption of the mortgage with a release of liability is another way to remove one person from the mortgage note and put another one on. They are not the easiest things to do and I have personally never worked with anyone who has done one. For this, I would talk with an attorney who specializes in this type of transaction. You would have to request it from your lender/servicer and there is no guarantee they will do it. There will be some fees and qualification requirements like credit and income just as if you were refinancing.

If anyone has ever done an assumption and release of liability, I would love to hear how it went. Scroll down to the comment section and input your experience. Thanks in advance!

Property Settlement

It is really tough deciding what to do with your home and the mortgage when you realize the divorce is happening. There is guilt and anger and those emotions can cloud your judgment. You may feel guilty and want to help the other person stay in the home. I’ve actually seen this happen several times.

Do not offer to help the person who is staying in the home qualify for the new refinance.

There is a part of the application asking if you are divorced or separated. You might think you are helping the other party by lying about being separated and using your income along with the person staying in the home to get them qualified for a refinance.

That is loan fraud plain and simple.

And it does not help the person staying if they can’t afford the new mortgage payments after the divorce. It may make you feel a little better at the time…a little less guilty…but it is not helping anyone. And you do have the whole loan fraud thing too which is a crime.

If you can’t refinance or sell because you may be underwater or can’t qualify, renting the home could be the answer. Again, the escrow company can help take in the payments and forward the payment to your mortgage company.

Separation Agreement

legal scales

Get your separation agreement completed and signed off by a judge as soon as possible. Verbal agreements can be very dangerous should one of you stop paying. The separation agreement breaks out who pays what and for how much and is enforced by the courts. Should your spouse stop paying or contributing to the mortgage payment or any other payments, you can take them back to court and make them fulfill their obligations.

It won’t help your credit at this point but at least you have some legal recourse.

When it comes to buying again or refinancing your current home, you used to be able to buy or refinance without the divorce settlement finalized. As long as the underwriter could see the separation agreement signed off by a judge, they could make a decision on your new mortgage. The underwriter just needed to see what your debt picture is without your spouse.

Now, lenders may require the final divorce decree for mortgage approval.

So that means you are in limbo on buying a new home or refinancing until the divorce is final. Get that separation agreement worked out and check with different lenders to find out if they require the divorce to be final or if the separation agreement is sufficient.

I do know how all this feels and it’s not fun. When I originated and processed mortgages, I worked with many divorcing people. And I am also divorced myself. It will get better. But I am not an attorney so do not hesitate to get the advice of an attorney on something as important as your divorce.

Good Luck and Hang in There!

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