The New York Times has posted an article that discusses how divorced homeowners are undertaking the difficult task of having their spouse’s name removed from the mortgage after buying out their share, which leads many people to assume that refinancing is the only option for them.
There is another much less complicated option that most people don’t know about. You can contact your lender about obtaining a release of liability, which will remove your ex-spouse’s name from the loan note, leaving it solely in your name. It’s much simpler and cheaper than refinancing.
However, not all lenders offer release of liability as an option. The lenders will most likely run a credit check on both of you and require that you meet a minimum credit score standard and cannot be behind on monthly mortgage payments. The lender may also require that any investors in the loan agree to the deal after the loan is sold off.
If you’re behind on mortgage payments, then release of liability is not an option.
“This is a common and often messy business,” said Jack Guttentag, a mortgage expert and emeritus finance professor at the Wharton School of Business at the University of Pennsylvania. “Lenders seldom have a reason to take a co-borrower’s name off the note.”
But, he added, if a homeowner can prove that he or she can afford the payments and meet the required credit criteria – typically those of the investor in the loan – then release of liability may work.
Neil B. Garfinkel, a real estate and banking lawyer in New York, says the lender will require the borrower to prove that they are able to meet the mortgage payments without their former spouse. This can be proved through bank statements, investment statements, and tax returns. Having one name removed actually protects the credit score of both people. If the former spouse was late on paying other debts then a lien could be placed on the home had their name not been removed. If the spouse taking over the home’s mortgage became delinquent on payments, then the former spouse’s credit score wouldn’t be impacted at all.
Most divorce settlements stipulate one of two outcomes for marital property. Either the house must be sold, or the person wanting to keep the property must buy out the other’s share, usually within months of the date of the settlement, and get the other party’s name off the mortgage – either through refinancing or a release of liability – typically within a year.
Under the second option, the former spouse signs a quit-claim deed at the divorce settlement, relinquishing his or her claim to the property. But while that action takes the former spouse off the house’s title and leaves it in one name only, it does nothing to remove his or her name from the actual mortgage.
Participating servicers and lenders charge anywhere from $300 to $1,000 to execute a release of liability. An additional application fee is required, which usually costs $250 to $500. The process usually takes between 30 to 90 days.
If you have further questions or concerns, feel free to contact us through our website or by calling 205-879-2447. You may also obtain a copy of our free book on stopping wrongful foreclosures and the problems of hidden fees by emailing us. We have also started handling bankruptcy cases.
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