Although the Divorce Decree may determine who retains ownership of the marital home after the divorce is final, it is important to understand that the Deed, Decree, and Debt are three entirely separate issues to settle.
The Deed & Transferring Ownership:
Transfer of ownership can simply be done with a Quitclaim Deed or other instrument. When both parties are co-mortgagees on the mortgage note, there is typically no further action needed when retaining the current mortgage as-is.
However, it is important to take action and notify the current mortgagor of the ownership transfer to avoid an acceleration of the mortgage due to a transfer of ownership when the party who is retaining the home is not obligated on the current mortgage note.
The Garn-St Germain Depository Institutes Act of 1982 protects consumers from mortgage lenders enforcing the due-on-sale clauses of their mortgage loan documents when the transfer of ownership includes transfers to a spouse, or children of the borrower, transfers at divorce or death, the granting of a leasehold interest of three years or less not containing an option to purchase and the transfer into an inter vivos trust (or a living trust) where the borrower is a beneficiary.
When one spouse is awarded the marital home and ownership is transferred leaving the current mortgage intact, the receiving spouse is agreeing to take sole responsibility for the mortgage payments through the assumption process. A loan assumption allows a transfer of ownership and leaves the loan intact at the same interest rate, loan terms, and balance.
In some assumptions, the lender may release the original borrower from his or her obligation on the promissory note, however, in most cases, the original borrower remains liable on the note. This means that, depending on state law and the circumstances of the particular case, if the new owner stops making mortgage payments at some point in the future and goes into foreclosure, the lender may come after the original borrower for a deficiency judgment to collect the debt.
Assumption & Release of Liability:
When a former spouse assumes ownership of the home and the mortgage, this does not always mean the mortgage lender will release the original borrower from their financial obligation or liability on the mortgage. A loan assumption is a transaction in which a person (the “assumptor”) obtains an ownership interest in real property from another person and accepts responsibility for the terms, payments and obligations of that other person’s mortgage loan. The assumptor is liable for the outstanding obligations and unless a release of liability is requested, the original borrower will remain liable as well.
A simple letter including a copy of the Divorce Decree sent to the mortgage holder may suffice as notice to the servicer. Sample wording follows:
Loan No. 12345678
GARN-ST. GERMAIN ACT ASSUMPTION NOTICE
I write to inform you that, as of April 1, 2018, my husband and I were divorced by an order of the Circuit Court of Henry County, Georgia. Pursuant to the divorce decree, Mr. Smith is required to transfer to me his entire interest in the marital residence located at 1234 Main Street. The transfer will take place on May 30, 2018. On that date, I am to assume the mortgage that encumbers the property and to make the payments thereon.
Therefore, pursuant to the Garn-St. Germain Depository Institutions Act of 1982, I hereby notify you of my intent to assume the Mortgage and Note. You may begin mailing statements to me immediately. Thank you for your cooperation and understanding.
Involve a Certified Divorce Lending Professional (CDLP) in the early settlement stages and obtain a complete analysis of the mortgage financing requirements. This essential and necessary step can help provide a smooth transaction post-divorce and remove unnecessary burdens and frustrations.
Always work with a Certified Divorce Lending Professional (CDLP) when going through a divorce and real estate or mortgage financing is present.
If you have any questions regarding a client’s contingent liabilities and how it will be considered in qualifying for a future mortgage, please contact me today!