Foreclosure and Divorce

Divorce and foreclosure often go together. If you find yourself facing a divorce, you might have questions about your current home mortgage, like who's liable for the debt after the divorce and how you can avoid a foreclosure. In this article, you'll learn:

• who's responsible for paying the mortgage debt
• what to do if one spouse wants to keep the home, and
• your options if no one wants the property

Who Is Responsible for Paying the Mortgage?

The first thing that a divorcing couple must first figure out is who's responsible for the mortgage debt. In many cases, when married couples first take out a mortgage, they get the loan and take title to the property jointly. In other circumstances, just one spouse might take out the mortgage and sign the promissory note. Signing a mortgage and promissory note has important legal and financial ramifications.

Suppose both spouses sign the mortgage and promissory note. In that case, they're jointly responsible for repaying the debt and would be liable for any deficiency judgment following a foreclosure, so long as state law allows lenders to sue borrowers to recover a deficiency But if only one spouse signs the promissory note, then that spouse is solely responsible for repaying the debt and is the only person that the bank may pursue to collect any deficiency judgment after a foreclosure.

If One Spouse Wants to Keep the Home

The next thing that the divorcing couple should consider is who, if anyone, wants to stay in the home and make the monthly mortgage payments. If this subject isn't addressed, both spouses might neglect to make the payments, and the house could slip into foreclosure.

Once you've determined who wants to live in the property and remain responsible for paying the mortgage (and release the other spouse from liability on the debt if legally obligated to pay it), that person can potentially:

• assume the loan or
• refinance the loan into their name only.

Mortgage Assumption

If one spouse wants to keep the house, that spouse can usually assume the mortgage and take over responsibility for the loan.

Refinancing the Mortgage

If one spouse wants to keep the property, another option is for that spouse to refinance the property in their sole name to release the co-borrower from the debt. In many cases, the terms of a divorce will require one spouse to refinance if that person wants to keep the property. In doing so, the former spouse is released from the responsibility of making future payments.

The spouse who remains in the home must rely on their own credit and finances to get the new loan.

If No One Wants the Home

If neither spouse wants the property, a few of the options available to avoid foreclosure include:

• selling the property to pay off the debt
• renting out the property and applying the rental income to the monthly payments
• arranging a short sale with the lender, or
• completing a deed in lieu of foreclosure.

Hiring an Attorney

If you're going through a divorce and are concerned about your liability for the home mortgage debt, talk to a qualified attorney for legal advice about your particular situation.