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:
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.
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:
If one spouse wants to keep the house, that spouse can usually assume the mortgage and take over responsibility for the loan.
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 neither spouse wants the property, a few of the options available to avoid foreclosure include:
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.