Unfortunately, some couples need to figure out what to do with their home and mortgage when splitting up. I recently spoke with Lara Blake at LaSalle Financial Services, (lblake@lasallefinancial.com) about this and below are some of her suggestions to alleviate headaches in the future. Please note, this is general information, not legal advice. Each person should discuss their particular situation with their legal and financial advisors.
Here is what Lara had to say:
I usually have a few refis each year that coordinate the timing of the close of the refinance with the dissolution of the marriage. That way the spouse that signs the quite claim has not relinquished ownership without also being released from the obligation of the loan. Plus, they don’t have to worry about the ex making late payments that will prevent them from rebuilding a new life and buying a new home for themselves, or with someone new in the future.
As difficult as it may be to consider the prospect of a mortgage while finalizing divorce it is very important to consider the ramifications of not doing so – especially to the party that is going to quit claim off title.
As long as the departing borrower remains on the loan, any subsequent late or derogatory mortgage payments by the spouse that remains in the property, will be reflected on their future credit report(s).
It is optimal if couples can work together through the process in a cooperative manner and initiate the process that will refinance the loan into the spouse’s name (who will retain ownership and possession of the property), so that once the departing spouse sign’s the quit claim, the refinance can close. This prevents the spouse who will relinquish ownership from the property, from remaining bound to the loan. In addition, it will protect their credit should the spouse who retains ownership make any late payments or even default on the loan.
If the spouse that retains ownership, makes late payments and the departing spouse has not refinanced off the loan, those late payments (by their ex) will quite possibly prevent them from being able to qualify for a loan in their own name.
Many couples that work through divorce mediation, time the refinance so that it closes (taking the departing spouse off the loan and title) within days of the departing spouse signing the quite claim deed relinquishing their interest/ownership in the home. Refinancing is the tool which qualifies the spouse that will remain in possession while removing the departing spouse from the loan, while title records ownership into the name spouse that will retain ownership through the close of the refinance.
