Although the Divorce Decree determines who retains ownership of the marital home, it is essential to understand that the Deed, Decree, and Debt are separate issues to settle. Here, we discuss crucial information about managing your mortgage after divorce.
The Deed & Transferring Ownership
Transferring ownership can be done with a Quitclaim Deed or similar instrument. When both parties are co-mortgagees, no further action is needed if retaining the current mortgage. However, notifying the current mortgage holder of the ownership transfer is crucial to avoid acceleration of the mortgage due to the transfer of ownership.
The Garn-St Germain Depository Institutions Act of 1982 protects consumers from mortgage lenders enforcing due-on-sale clauses when ownership transfers to a spouse, children, at divorce or death, granting a leasehold interest of three years or less without an option to purchase, or transferring into a living trust where the borrower is a beneficiary.
When one spouse is awarded the marital home and ownership is transferred while leaving the current mortgage intact, the receiving spouse agrees to take sole responsibility for the mortgage payments through the assumption process. A loan assumption allows the transfer of ownership, keeping the loan intact at the same interest rate, loan terms, and balance.
In some cases, the lender may release the original borrower from their obligation on the promissory note, but typically, the original borrower remains liable. If the new owner defaults on mortgage payments and goes into foreclosure, the lender may pursue the original borrower for a deficiency judgment to collect the debt.
Assumption & Release of Liability
Assuming ownership of the home and mortgage does not always release the original borrower from their financial obligation. A loan assumption involves the new owner (assumptor) taking on the terms, payments, and obligations of the mortgage. Unless a release of liability is requested, the original borrower remains liable.
Sample Notification Letter to Mortgage Holder:
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 to 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.
How a CDLP® Can Help
Involving a Certified Divorce Lending Professional (CDLP®) in the early settlement stages ensures a complete analysis of the mortgage financing requirements. This crucial step can help provide a smooth transaction post-divorce and eliminate unnecessary burdens and frustrations.
Work with a Certified Divorce Lending Professional (CDLP®)
Always work with a Certified Divorce Lending Professional (CDLP®) when dealing with divorce and real estate or mortgage financing. Their expertise ensures a smooth and successful transition during the divorce process.
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.
Copyright 2021 Divorce Lending Association. No portion of this post may be reproduced without the written consent of the Divorce Lending Association.
