The marital home and its existing mortgage often become central issues in divorce settlements. However, resolving these issues involves more than simply deciding who keeps the house. It's essential to address the separate aspects of the deed, decree, and debt.
Understanding the Deed and Transferring Ownership
A property owner can transfer ownership using a Quitclaim Deed or another legal instrument. When both parties are co-mortgagees, no further action is typically needed to retain the current mortgage. However, it's crucial to notify the lender of the ownership transfer to prevent mortgage acceleration due to an ownership change when the retaining party isn't obligated on the current mortgage note.
Impact of the Garn-St Germain Depository Institutions Act of 1982
This Act protects consumers from mortgage lenders enforcing due-on-sale clauses when ownership is transferred to a spouse, children, or due to divorce or death. It also covers the granting of a leasehold interest of three years or less and transfers to an inter vivos trust where the borrower is a beneficiary.
When one spouse is awarded the marital home and ownership is transferred, leaving the mortgage intact, the receiving spouse agrees to take sole responsibility for the mortgage payments through the assumption process. This allows the loan to remain at the same interest rate, terms, and balance. However, assuming responsibility for the payments doesn't necessarily release the original borrower from liability.
Assumption and Release of Liability
When a former spouse assumes ownership and the mortgage, the lender might not release the original borrower from financial obligations. In a loan assumption, the new owner accepts the terms, payments, and obligations of the mortgage. Unless a release of liability is requested, the original borrower remains liable. If the new owner defaults, the lender may seek a deficiency judgment against the original borrower.
Notification to the Mortgage Holder
A letter to the mortgage holder, including a copy of the Divorce Decree, may suffice as notice. Here is a sample:
Loan No. 12345678
GARN-ST. GERMAIN ACT ASSUMPTION NOTICE
I am writing to inform you that, as of April 1, 2018, my husband and I divorced by order of the Circuit Court of Henry County, Georgia. According to the divorce decree, Mr. Smith must 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 make the payments thereon.
Therefore, pursuant to the Garn-St. Germain Depository Institutions Act of 1982, I now notify you of my intent to assume the Mortgage and Note. Accordingly, you may begin mailing statements to me immediately. Thank you for your cooperation and understanding.
The Role of a Certified Divorce Lending Professional (CDLP®)
Involving a CDLP® early in the divorce settlement process can help both parties make informed decisions about home equity solutions. A CDLP® can provide a comprehensive analysis of mortgage financing requirements and their effects on both spouses, ensuring a smooth post-divorce transaction and alleviating unnecessary burdens and frustrations.
Why Consult a CDLP®?
A CDLP® brings value to the divorce team by identifying potential conflicts between the divorce settlement, home equity solutions, and real property issues. This professional can help divorcing homeowners set the stage for successful mortgage financing in the future.
Disclaimer
This information is for educational purposes and not for legal or tax advice. Consult an attorney or tax professional for such advice. Interest rates and fees are estimates and subject to market changes. This is not a commitment to lend. Rates change daily—call for current quotations. The information in this newsletter has been prepared by, or purchased from, an independent third party and is distributed for consumer education.
Copyright 2021 Divorce Lending Association. No portion of this post may be reproduced without written consent from the Divorce Lending Association.
