Being released from a mortgage during a divorce is not a simple process. The lender has two married people on the hook for this mortgage, and it often took both people to qualify for it when they originally took it out. Since both spouses are responsible for the mortgage, the most common way one party can be released from the mortgage is for one to buy the other out by refinancing, as is described below. If a refinance is not an option, the property would need to be sold, releasing both parties
Consult a Mortgage Broker
Make an appointment with a trusted mortgage broker. This appointment is for the person who will be keeping the home, since they are the one who will need to qualify for the loan. Discuss the goal of the refinance, which is to buy out the interest of the other spouse, releasing him from the mortgage.
File a Quit Claim Deed
If your refinance is approved, have your attorney furnish you a quit claim deed (a document that allows one party to transfer his interest and control of property to another) so that control of the property can be transferred to you, the buying party, in the refinance. Quit claim forms can also be purchased at office supply stores.
Schedule an Appraisal
Complete the application for the refinance with the mortgage broker, and allow an appraisal to be ordered. When you are approved for the loan, fill in the address and legal description on the quit claim deed. Both spouses should take the deed to a notary public. The person being bought out needs to sign and date this form in front of the notary.
Take the original notarized form to the mortgage broker, who will send it to the closing agent. It will be filed in legal filings at the time your new mortgage closes. In the event the loan does not close, no interest is transferred since the document would not have been filed.
Buying Out the Selling Party
Stay in touch with the broker. When the appraisal comes in, discuss the value with the broker, and the amount of funds available after closing costs to buy out the selling party. Make sure the property value you received is sufficient to do so.
A value that is much lower than anticipated may cause the transaction to not accomplish your goal. If this is the case, you may need to sell the home in order to be released from the mortgage. This would allow both parties to be released from the mortgage.
The Loan Closing
Assuming the appraised value of the property was sufficient and the loan was approved, schedule your closing. Attend the closing, ask questions regarding documents you do not understand.
This signing of documents does not finalize the transaction. There is a three-day period in which you can rescind this loan if you decide it is not right for you. Payoff checks will be sent out on business day number four. The person being released from the old mortgage will be paid, and since he is not on the new mortgage, he is now released. You are now the sole owner of the home.
Assumable Loan Option
Another option (which is rare) may be to ask the lender if the loan is assumable. If it is, it may be possible for the remaining spouse to prove that he can make payments himself. If the lender allows this, the spouse that is leaving will need a release of liability document, which is provided by the lender, and the staying spouse will need an assumption package and contract, which is also provided by the lender. If this assumption and release can be accomplished, it would need to be shown in the divorce agreement.
- In the event a refinance is not an option, the home would need to be sold. This would allow both parties to be released from the mortgage.
- Another option (which is rare) may be to ask the lender if the loan is assumable. If it is, it may be possible for the remaining spouse to prove that he can make payments himself. If the lender allows this, the spouse that is leaving will need a release of liability document, which is provided by the lender, and the staying spouse will need an assumption package and contract, which is also provided by the lender. If this assumption and release can be accomplished, it would need to be shown in the divorce agreement.
- A quit claim deed, which is a deed that has one party quitting their claim and giving all control of the property to the other party does NOT release any parties from the obligation of the mortgage.
- Going through a divorce is stressful. Good credit scores are critical in the refinance of a mortgage. It is easy to lose sight of personal credit when emotional upheaval is happening. Continue to take good care of your credit during this trying time.
Joey Campbell spent eight years in real estates sales and property management. She has been active in residential and commercial mortgage for the past 23 years in the Southeastern U.S. Campbell has attended hundreds of seminars, and has written and conducted workshops on subjects such as credit, debt excelleration and prequalifying for residential mortgages.