Division of most marital assets is easy: For instance, ex-spouses dividing a checking account can close the account, divide the money according to the court order, and then transfer it to their individual accounts. But, dividing the marital home is far more problematic.
First, spouses must transfer title to the home, which often involves retaining counsel. But, many forget that the home’s mortgage loan should be refinanced by the party retaining the home (if the final order calls for it, and it should). This is often difficult (or even, impossible) to accomplish when one spouse is trying to qualify for a mortgage on their own.
Ex-spouses are usually quick to deed the property over to the spouse who is receiving the home and their lawyer usually handles the deed’s preparation and recording. However, the receiving party then applies for a home loan, only to find they do not qualify. Or, if they do qualify, the new loan comes with a much higher payment because the bank is taking on more risk with only one obligor. So the ex-spouse never actually follows through with the refinance – they just contact the mortgage company and ensure all mail goes to their address. Then, payments to the mortgage company continue and no one knows that this issue is lurking.
Fast forward a year or two
The ex-spouse in the home suffers an unexpected financial expense or a layoff from work. They miss a few mortgage payments, the mortgage loan is called due, and collection letters start going out — all to the party in the home, with you knowing nothing of the issue. Up next, a foreclosure is filed. You thought you were free of the mortgage until served with the foreclosure complaint seeking a six-figure judgment against you. What happened?
When you signed the note and mortgage, you made a promise to repay a debt to the mortgage lender. So, absent paying off that loan or reaching a new agreement with your mortgage lender, your mortgage lender is entitled to expect you to repay the debt – with no consideration for the private agreement reached between you and your spouse in a divorce. In fact, your divorce decree is merely an order in place against the ex-spouse. The company that owns your mortgage is under no obligation to follow that court order, since they were very likely not party to the case and had no opportunity to protect their interest in your case. Therefore, your divorce order probably provides you no protection against foreclosure.
The time to fix this issue is not when you receive the foreclosure complaint, but to tackle this issue immediately after divorce by ensuring your former spouse refinances the loan. After divorce, you should first execute and record the deed called for in your decree; that way, there will be no hurdles to your ex-spouse refinancing the mortgage loan. Next, your decree should state a specific time frame to complete, not start, the refinancing process. As soon as that time frame runs, you should obtain paperwork that evidences your original loan’s payoff or send a demand letter to your ex-spouse reminding them of their obligations. If the ex-spouse does not complete the refinancing, you should take immediate action by seeking relief from the court. And, if your ex-spouse simply cannot qualify for a loan, the property should immediately be sold.