Awarded the marital home in your divorce but not a borrower on the existing mortgage? Here's how to navigate this situation effectively.
Refinancing the Mortgage in Your Name
If you plan to refinance the mortgage into your name but aren't currently on the mortgage, this typically isn't a problem. However, your current status on the home title and the duration of that status can impact the type of mortgage you qualify for. It's highly recommended to consult with a divorce mortgage planning professional to assess your eligibility.
Retaining the Existing Mortgage
If you plan to keep the existing mortgage and aren't a current mortgagee, follow these steps to inform the current lender (mortgagor) about your intent and rights.
Assumption & Release of Liability
When a former spouse assumes ownership of the home and the mortgage, it doesn't automatically release the original borrower from their financial obligations. A loan assumption involves transferring ownership and accepting the mortgage terms, payments, and obligations. The new owner (assumptor) becomes liable for the mortgage, but the original borrower remains liable unless a release of liability is requested.
Successor Homeowner’s Right to Information
Divorcing spouses awarded ownership of the marital home but not on the existing mortgage face challenges in obtaining mortgage information.
Two key amendments by the CFPB to RESPA and TILA mortgage servicing rules (effective April 19, 2018) extend mortgage servicing protections to successors in interest, such as homeowners awarded the marital home in a divorce. These homeowners now have rights related to loan modifications, dispute resolutions, monthly statements, escrow accounts, servicing transfers, and other protections under TILA and RESPA.
Understanding the New Rules
The new rules expand the definition of a "borrower" under RESPA and "consumer" under TILA to include confirmed successors in interest. Successors in interest are defined in accordance with the Garn-St. Germain Act, covering transfers due to the borrower’s death, divorce, or separation agreements, transfers to a spouse or children, or to a trust in which the borrower is a beneficiary.
Once a servicer confirms a successor’s identity and ownership interest, these protections apply. No additional requirements should be imposed to confirm a successor in interest under the regulations.
The CFPB has introduced a specific “Request for Information” procedure 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, containing the transferor borrower's name and sufficient information to identify the loan, the servicer must provide a description of the required documents to confirm the successor's identity and ownership interest. The servicer must acknowledge receipt within five business days and respond substantively within thirty business days.
Sample Letter to Mortgage Holder
A simple letter including a copy of the Divorce Decree can suffice as notice to the servicer. Sample wording follows:
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.
How a CDLP® Can Help
A Certified Divorce Lending Professional (CDLP®) can help divorcing homeowners make more informed decisions regarding their home equity solutions while assisting the professional divorce team in identifying potential conflicts between the divorce settlement, home equity solutions, and real property issues.
Involving a Certified Divorce Lending Professional (CDLP®) early in the divorce settlement process can help set the stage for successful mortgage financing in the future.
Disclaimer
This information is for informational purposes only and not for providing legal or tax advice. Contact an attorney or tax professional for 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 in this newsletter is prepared by, or purchased from, an independent third party and is distributed for consumer education purposes.
Copyright 2021—All Rights Divorce Lending Association
