Divorce and Mortgage in Michigan
After years of marriage and home ownership, you and your spouse decide to divorce. For many couples, your home is your most valuable asset. Decisions regarding division of equity, possession, and liability for repayment of the mortgage loan after divorce need to be decided. This raises several legal questions that have serious financial implications for both parties.
Who Is Responsible for Paying the Mortgage?
A divorce agreement may specify that one spouse is responsible for the mortgage payments, but if both spouses’ names are on the mortgage, both are liable if there is a default on the loan.
Do We Have to Sell the Home in Order to Divide the Equity?
Not always. The equity in the home can be distributed in a number of ways. Selling is an option, but a preferable approach may be a buyout, in which the spouse who remains in the home refinances the mortgage and pays the other spouse their share of the equity.
How Do We Transfer Ownership from Both Spouses to One Spouse Without a Buyout or Sale of the home?
One spouse may sign a quit claim deed - relinquishing that spouse from the rights and benefits of ownership of the property. The spouse literally "quits" all "claims" to the property.
Will the Spouse Who Signs the Quit Claim Deed Still be Held Responsible for the Mortgage?
If the spouse who signs the quit claim deed is named on the mortgage, they are still responsible for the loan in the event of a default, even though they no longer retain any rights or benefits of ownership of the property.
Beyond a Quit Claim Deed, How Do We Transfer Liability for the Mortgage to One Spouse?
The spouse who retains posession of the home can either assume the mortgage, or refinance the home solely in their name. With a mortgage assumption, liability for the loan is transferred to the spouse who will be responsible for all future payments.
A mortgage assumption in a divorce situation is usually less expensive than it is to obtain a new loan, but not all loans are assumable. Sometimes, not all borrowers meet the income and credit requirements to qualify for a refinance loan. The home can be refinanced with a home-equity loan in order to buy out the party that is leaving the residence, or a new first mortgage may taken out in the name of the spouse who stays.
What if the Mortgage Balance is Higher Than the Value of the Home at the Time of the Divorce?
The buyout of one spouse by the other, or the sale of the home can be deferred to a later date. The expectation would be that property values would have increased enough that there’d be enough equity in the home to break even, if not turn a profit.
If it’s not likely that either spouse will be be able to pay for the home, a short sale might be the only option. This is where the parties use an intermediary to act as their agent to negotiate with the mortgage holder to sell the house at a price less than what is owed to the mortgage company. The mortgage company then signs a release of liability against the sellers for any deficiency in the home. This means that the parties may sell the home for less than the value of the mortgage and walk away from the home without ruining their credit or their savings.
This appears to be the best option but it only works if there is a willing buyer and the mortgage company is willing to work with the parties.
These are only a few potential solutions. There are many possible ways of dealing with mortgage issues and the divorce process can be very flexible if the parties are able to work together in order to move on with their lives. A solution can be available for every situation.
If you are currently in a divorce mortgage situation, please contact us today to review the options available for divorce remortgage,and loans for divorced men and women.
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