Depending on where you live, state laws usually say that the separate debts that one spouse incurs make that person alone financially responsible. Although the rule generally applies as long as you don’t co-sign any loan or credit agreements that are in your spouse’s name, there are certain exceptions. Even if you aren’t a co-borrower on a mortgage loan, in some instances you could still find a mortgage company coming after you for the debt.
Although you might not be a co-borrower on the loan with your spouse, if the lender allowed you to be a co-owner of the home, you likely had to sign the mortgage documents. Since the home secures the mortgage, the lender has the right to foreclose if your spouse doesn’t keep up with the mortgage payments. Having you sign the mortgage note even though you aren't financially responsible for repaying the loan protects the lender’s right to foreclose if your spouse defaults on the loan, points out The Mortgage Professor. Unfortunately, if you have ownership rights in the property, your credit could be negatively affected in the case of foreclosure.
Death of a Spouse
If your spouse dies and your name isn't on the mortgage as a co-borrower or co-signer, there are ways you can still keep the house. You're automatically eligible to assume the mortgage if your name appears on the deed or your spouse leaves you the house in his will. The Garn-St. Germain Depository Institutions Act of 1982 prevents the lender from enforcing the due-on-sale clause if you're a surviving joint tenant or the title of the property is transferred to you by inheritance, notes Bankrate debt adviser Steve Bucci. A due-on-sale clause gives a lender the right to request payment of the outstanding mortgage balance due when the property is sold or ownership of the property is transferred to another person.
If you live in a community property state, and the home was bought with money either of you earned during marriage, the law considers the home community property that you and your spouse own equally. Essentially, the law also makes each of you responsible for part of the other spouse’s debts that are acquired during marriage, according to Nolo. The only way you would not be responsible for the mortgage debt is if you and your spouse sign a written agreement that makes the home your spouse's separate property. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin are all community property states.
In cases involving reverse mortgages in which only one spouse puts his name on the loan application, the bank can come after the surviving spouse when the borrowing spouse dies, reports “The New York Times.” With a reverse mortgage, you don't make payments to the bank. Instead, you pay off the loan when you or your heirs sell the home. How much of a loan you qualify for depends on the amount of equity you have in the home. Unfortunately, when only one spouse signs the reverse mortgage application, the spouse who inherits but who isn’t on the loan must pay off the balance to remain in the home. If she can’t pay, the bank can foreclose. The situation becomes more complicated if the home has lost value and is worth less than the amount still owed on the loan.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.