When couples divorce, the marital home is often the single largest asset in the financial settlement, and the single largest source of confusion. While one spouse may be awarded the home, both names often remain on the mortgage, creating future roadblocks that most people don’t see coming.

A common but often misunderstood option in these scenarios is the Simple Legal Transfer assumption, supported by the Garn-St. Germain Depository Institutions Act of 1982. While it provides key protections for divorcing homeowners, it doesn’t automatically solve the problem of post-divorce mortgage liability—unless very specific steps are taken.

Let’s break down what a Simple Legal Transfer is, how it works under federal law, and why proper language in the settlement agreement can protect the vacating spouse from mortgage-related setbacks.

What Is a Simple Legal Transfer Assumption?

A Simple Legal Transfer assumption refers to the transfer of legal ownership and financial responsibility for a property and its mortgage from one spouse to another, without requiring a full refinance or triggering the lender’s due-on-sale clause.

This is especially important in divorce cases where one spouse is awarded the marital home but cannot refinance immediately due to income, credit, or timing issues.

Federal Protection Under the Garn-St. Germain Act

Under normal circumstances, transferring title to a mortgaged property allows a lender to invoke the due-on-sale clause, which means they can demand immediate full repayment of the loan.

However, the Garn-St. Germain Depository Institutions Act of 1982 specifically prohibits lenders from enforcing this clause when the transfer of ownership is a result of divorce. This protection allows one spouse (the transferee) to assume responsibility for the mortgage, even if their name is not formally added to the loan, without triggering a refinance or foreclosure.

This spouse is known as a Successor in Interest and is legally permitted to take over all responsibilities related to the mortgage.

But Here’s the Catch: The Mortgage Note Remains in Both Names

While the Garn-St. Germain Act allows the in-spouse to take full financial responsibility, it does not release the vacating spouse from their legal obligation on the mortgage note. Unless a refinance or formal assumption is completed, the vacating spouse remains legally liable, even if they’ve moved out and signed away their ownership rights.

This can have serious consequences. If the vacating spouse tries to qualify for a new mortgage in the future, the existing mortgage may still be included in their debt-to-income ratio, potentially disqualifying them from obtaining financing.

A Strategic Solution: Proper Settlement Agreement Language

The best way to mitigate this risk is to include clear and comprehensive language in the divorce settlement agreement that documents who is responsible for the mortgage moving forward.

This helps future mortgage underwriters exclude the existing mortgage from the vacating spouse’s liabilities, assuming they can provide documentation that the other spouse is paying the mortgage and that the agreement legally supports that transfer of responsibility.

Sample Settlement Agreement Language

Below is a sample clause that has been used successfully in divorce settlement agreements across multiple jurisdictions. It documents mortgage responsibility in alignment with Garn-St. Germain protections and can serve as supporting documentation for mortgage underwriting purposes:

Real Property Award and Mortgage Responsibility – The marital residence located at (hereinafter referred to as “the Property”) shall be awarded to as her/his sole and separate property.

As a Successor in Interest, and in accordance with the Garn-St. Germain Depository Institutions Act of 1982, shall assume full legal and financial responsibility for all obligations associated with the existing mortgage on the Property, currently serviced by , or any future mortgage servicer to whom the loan may be assigned. Said obligations include, but are not limited to, the full monthly mortgage payment, property taxes, homeowners' insurance, homeowners’ association (HOA) dues, and all other related escrow items. shall also assume sole responsibility for the ongoing maintenance and upkeep of the Property, including any necessary repairs, improvements, or actions reasonably required to preserve the home’s condition and maintain its current fair market value.

Additionally, if appropriate to your agreement, shall immediately execute a Quit Claim Deed or other conveyancing document necessary to transfer all of her right, title, and interest in the Property upon the entry of the final Decree of Dissolution of Marriage.

Disclaimer: This is not legal advice. The language above is sample content drawn from previously executed settlement agreements and should be reviewed and customized by a qualified family law attorney.

Why This Matters

Mortgage underwriting guidelines permit a borrower to exclude a jointly obligated mortgage from their debt-to-income ratio only when specific conditions are met, including documentation from a divorce decree assigning the debt to the other party and proof that the party has paid the mortgage for at least 12 months.

By including the above language in the divorce decree or property settlement agreement, the vacating spouse gains a crucial legal advantage—one that supports future mortgage qualification and financial independence.

Because when it comes to the marital home, the mortgage isn’t just a loan—it’s a legal strategy. Make sure you have the right professionals guiding the process.

To ensure your divorce cases include strategic financial clarity and sustainable housing solutions, schedule a strategy call with a CDLP today.

Certified Divorce Lending Professionals (CDLP®) are mortgage professionals with advanced training in divorce mortgage planning, dedicated to providing financial clarity and sustainable solutions for divorcing homeowners and the family law professionals who serve them.

Disclaimer

This article is for informational purposes only and should not be considered legal or tax advice. Always consult with a qualified professional for advice specific to your situation.

Copyright © Divorce Lending Association. All rights reserved.

 

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