When one spouse keeps the family home after a divorce, he or she must have the other spouse’s name removed from the mortgage note. Loan refinancing is often used to take the other spouse’s name off the mortgage, but a release of liability is another option to explore when handling a mortgage after a divorce.
What Happens to a Home Mortgage After Divorce
Divorce settlements frequently result in one of two outcomes for the family home. If neither spouse can afford the mortgage by him or herself, the divorcing couple may be ordered to sell the house and split any proceeds from the sale between them. Otherwise, a spouse who wants to and can afford to keep the home must buy out the other spouse’s share of the home and remove the other spouse’s name from the mortgage, usually within one year.
When one spouse elects to keep the home, the other spouse often signs a quit-claim deed, which severs any claims he or she has to the property. However, using a quit-claim deed only removes the other spouse’s name from the home’s title — it does not take his or her name off the mortgage.
To take a name off a mortgage, many people refinance the loan. But, according to LendingTree, refinancing can cost 3 to 6 percent of the amount of the outstanding loan. Instead, qualified couples may be able to use a release of liability to remove a spouse’s name from a mortgage note.
Release of Liability
Eligible couples can remove a spouse’s name from a mortgage at a lower cost than refinancing through a release of liability. According to the New York Times, the application fee for a release of liability ranges from $250 to $500. In addition, lenders usually charge $300 to $1,000 to execute the release of liability, which can take 30 to 90 days.
A release of liability is a relatively simple way to take another person’s name off a mortgage. But, not all lenders allow releases of liability, and not all borrowers qualify for them. If the mortgage balance is greater than the value of the home, a release of liability is not possible.
Further, a spouse who wishes to keep the home must demonstrate that he or she can afford the monthly mortgage payments in addition to obtaining the approval of any investors in the loan and meeting their credit criteria. To prove their eligibility, individuals seeking releases of liability typically must provide the following to their lenders:
- Tax returns
- Monthly bank statements
- Investment statements
If you have questions about divorce, the division of marital assets or what happens to your family home in a divorce, contact a knowledgeable family law attorney for more information.