deed decree and debt in divorce

The deed, decree, and debt all intersect during a divorce, yet each must be addressed separately in the settlement process. When navigating a divorce, it is crucial to work with an experienced mortgage professional. This is why partnering with a Certified Divorce Lending Professional (CDLP®) is essential.

The Deed:

When transferring ownership of the marital home from jointly held ownership or from sole ownership to the other spouse, using the correct transfer deed is crucial. Whether it's a Quit Claim Deed or a Warranty Deed, the choice impacts the new sole owner's protection. A Quit Claim Deed is the most commonly used transfer deed but provides the least protection to the receiving spouse. Without warranties, it offers the grantee little or no recourse against the grantor if a problem with the title arises in the future.

A Warranty Deed may be a much better choice as it provides the most protection to the new owner. This type of deed guarantees that the grantor holds clear title to the real estate and has the right to sell it to the grantee. The guarantee is not limited to the time the grantor owned the property; it extends back to the property's earliest title. Therefore, earlier grantors occasionally find themselves confronted by issues from future grantees.

The Decree:

The divorce decree and settlement agreement significantly influence the ability to secure future mortgage financing. Specific language is crucial, outlining responsibilities for refinancing, existing mortgage payments, taxes, and insurance. Pre-approval for future mortgage financing before finalizing the divorce is highly recommended to avoid complications.

The Debt:

Addressing all marital debt in the divorce settlement agreement is another key topic that needs clarity and can affect how debt is considered during mortgage financing. If the debt is joint, specifically address how it is to be paid and by whom. Simply stating that parties will share the burden of paying joint debt 50/50 does not suffice.

Clarify that each party is responsible for paying 50% of the specific debts and how each party is to pay. For example, Mr. and Mrs. Smith will each share the burden of paying the marital debt 50/50, and each spouse will pay 50% of the monthly payment until the debt is paid. This provides clarity as to how the debt will be counted during the mortgage application process.

Working with an Experienced Mortgage Professional:

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

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