No one gets married with thoughts of ending the marriage at some stage later on. It’s a lifelong commitment to live happily ever after, for better or worse. But sometimes things get so bad it’s beyond “worse” and the couple decides to make some changes. When a married couple buys real estate together but later decide to separate or divorce, there are some important things to consider.
First, there’s a definition of separation, as it relates to owning real estate. On the loan application, it will ask the marital status of the applicants. But splitting up and occupying separate residences isn’t automatically being separated. Physically, yes. But not legally, at least in the lender’s eyes. Consider a couple that got married and soon thereafter purchased a home together. Both are on the title and both are on the mortgage. Later, the couple decides it’s time to separate for a while to see if the marriage can still work. There’s a legal status being separated but it must be so stated on a separation agreement signed by a judge.
But the mortgage still needs to be paid. Let’s say the wife stays and occupies the property while the husband finds another place to live. The husband finds a home he’d like to buy and applies for a mortgage. But the lender sees a mortgage on the credit report that is linked to the initial home. The husband says they’re separated and she’s the one paying the mortgage. Yet the lender won’t approve his application because he’s still on title with the old home and definitely still on the mortgage. He protests but to no avail. The only way he can get the mortgage off of his credit report is to have the wife refinance the existing mortgage taking him off the note and removing him from the title. However, they needed both incomes to qualify for the previous home and now she can’t qualify on her own due to the reduced income.
Here’s a similar scenario regarding a divorce. Again, the husband leaves and finds a new home to buy. Again, the old mortgage is still showing up. He points out to his lender that he’s divorced and no longer responsible for paying the loan. At the same time, she’s been having problems making the payments on time and there are now a few payments showing on his credit report that are more than 30 days past the due date. He, of course, was unaware of these late payments but they’re still showing up on his credit report. His credit is being damaged just as hers even though the agreement was that she would keep the home and be responsible for the mortgage. But the lender isn’t fazed. He’s still on the mortgage and there are late payments. He can’t qualify for the loan he wants because of this.
He then contacts his attorney and gets a copy of his divorce decree. The decree clearly states that it’s the wife that gets the home and is responsible for the mortgage but again the lender doesn’t budge. The original note doesn’t have anything in it that says if the couple gets divorced the lender will abide by any judge’s findings. The judge might award the home to the wife who also accepts responsibility for making the monthly payments, but the lender is not part of that. The ex-husband is still liable for the home loan.
There can be exceptions to this if the wife can provide a 12-month payment history of being on time each month. For some lenders, this can release the ex-husband from the liability. But if there are late payments made, that can be another issue. The decree could clearly state the wife is responsible for the home loan, but the lender doesn’t automatically have to agree to the arrangement. In this example, again, the only way to release the husband from the obligation is to retire the existing note, either by selling the property or refinancing the original note.
When a marriage dissolves, there are so many matters to take care of as it relates to splitting up personal property. Typically, anything one person brings into the marriage can keep it, but anything acquired after marriage, it’s jointly owned, even if one spouse used his or her own funds to acquire the asset. Finally, different states can have different rules regarding personal property and the dissolution of a marriage. As with any such an important matter, legal counsel should be one of the first things to consider.
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