You were awarded the marital home in the divorce but aren’t currently on the mortgage. How do you work with the mortgage holder going forward?
Assumption & Release of Liability
When a former spouse assumes ownership of the home and the mortgage, it does not always mean the mortgage lender will release the original borrower from their financial obligation. A loan assumption is a transaction where the “assumptor” obtains an ownership interest in the property and accepts responsibility for the mortgage terms, payments, and obligations. Unless a release of liability is requested, the original borrower remains liable.
Successor Homeowner’s Right to Information After Being Awarded the Marital Home
A common issue for divorcing spouses awarded the marital home is obtaining information on the current mortgage if they are not obligated on it. The CFPB's RESPA and TILA mortgage servicing rules, effective April 19, 2018, extend protections to successors in interest, such as homeowners awarded the marital home in a divorce. These protections include loan modifications, dispute rights, monthly statements, escrow accounts, servicing transfers, and other rights under TILA and RESPA.
The new rules redefine “borrower” under RESPA and “consumer” under TILA to include confirmed successors in interest. Successor in interest applies to transfers listed in the Garn-St. Germain Act, such as those resulting from divorce or separation agreements, transfers to a spouse or children, or transfers to a trust where the borrower is a beneficiary.
Once a servicer confirms the successor’s identity and ownership interest, protections under RESPA and TILA apply. No additional requirements should be imposed to confirm a successor in interest.
Requesting Information as a Potential Successor
The CFPB introduced a special “Request for Information” for potential successors under new RESPA § 1024.36(i). If a servicer receives a written request indicating a person may be a successor in interest, and it contains the name of the transferor borrower and sufficient information to identify the loan, the servicer must respond with a written description of required documents to confirm identity and ownership interest. The servicer must acknowledge receipt within five business days and respond substantively within thirty business days.
Notifying the Mortgage Holder: Divorce Decree and Sample Letter
A simple letter, including a copy of the Divorce Decree, sent to the mortgage holder may suffice as notice. Sample wording follows:
Sample Letter:
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 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.
Working with a Certified Divorce Lending Professional (CDLP®)
Navigating mortgage transfer after divorce can be complex. Work with a Certified Divorce Lending Professional (CDLP®) to ensure there are no language traps between the intent of the divorce settlement agreement and mortgage guidelines. Their expertise can help avoid mortgage denial due to word choices or lack of clarification. Find a CDLP® in your area for expert guidance.
It is always important to work with an experienced mortgage professional who specializes in working with divorcing clients. A Certified Divorce Lending Professional (CDLP®) can help answer questions and provide excellent advice.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations. The information contained in this newsletter has been prepared by, or purchased from, an independent third party and is distributed for consumer education purposes.
Copyright 2020—All Rights Divorce Lending Association
