Mortgage Assumption & Divorce
When spouses who own marital property divorce, courts may order them to sell their property or, if agreeable, one spouse may assume the mortgage payments with lender approval. If the lender allows the spouse to assume the mortgage, then one spouse will have to provide a release of liability from the bank in exchange for a transfer of title.
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Assumable Mortgages
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Most deed of trust instruments recorded with the county's circuit court clerk or land records division contain provisions prohibiting assumptions. Most mortgages are non-assumable, and the only way to transfer responsibility for future loan payments is to refinance the property with the lender. Some Veterans Administration loans or VA government-backed loans are assumable, but conventional loans are not. Couple who do not refinance the home or obtain written permission to assume the existing mortgage will remain jointly liable for making future loan payments and jointly liable for any future delinquencies.
Release of Liability and Assumption Agreement
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If the lender agrees to the mortgage assumption or allows it in its deed of trust, then the bank will most likely require the spouse assuming the mortgage to go through at least a limited underwriting process to ensure repayment on only one income. Banks may request payment of lender fees required to reprocess the loan, but these fees are typically much lower than refinancing fees. Once the spouse receives the lender's approval, the spouse should retain an attorney to draft a new deed to provide sole ownership to the spouse assuming the mortgage. Banks may be able to provide the other spouse with a written release of liability in exchange for the conveyance.
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Refinance Options
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Without the option to assume the mortgage, spouses who want to remain in their marital homes must refinance their homes without an assumable mortgage. In essence, refinancing and assumptions provide the same results, but spouses who refinance their homes typically go through a lengthier and more expensive financial underwriting process. Typically, refinance options are more costly since spouses have to obtain a different loan and close their loans through real estate settlement companies who collect transfer taxes, recording fees, document stamp fees and lender loan fees.
Buyouts
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During the refinancing process, the spouse refinancing the mortgage must reimburse the other spouse for any accrued equity in the home by cash payments or by obtaining a larger mortgage and paying the other spouse through refinance proceeds.
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References
Resources
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