Did you know that the divorce rate in Texas is 11% and the national divorce rate is 7%? Most of the time, couples that divorce have a mortgage they need to handle as a part of the divorce decree.
A mortgage is a formal agreement, that allows you to borrow money to buy a property. However, in the occasion that payments towards the mortgage fail, the lender is allowed to take away the property that is being mortgaged. You may be wondering, what happens to a mortgage when someone gets a divorce? Below are your options.
Refinancing can occur when one of the parties is wanting to remove the other off of the mortgage, access home equity, or change mortgage terms. Some things that parties may benefit from are protection and more affordable mortgage payments. Yet, a borrower should be aware that it could be harder to qualify, there will be closing costs, and the mortgage payment could increase. When trying to refinance a mortgage, your credit score will determine whether or not you qualify for refinancing. Of course, since one of the parties is going to get taken off the mortgage, the party keeping the mortgage needs to re-qualify to make sure that the party can afford the mortgage payment on their own with no help of their former spouse.
Selling is the most common and best option if both parties can’t afford the mortgage payment on their own or if neither of the parties credit score is good enough to refinance. If both parties agree on selling, both parties will need to determine the value of the property and evenly divide the equity or debt.
What If We Are Already Divorced, But I Am Still on the Mortgage?
Typically, when a divorce occurs and there is a mortgage involved, one party will be awarded the house and will be required to refinance the mortgage in solely their name. Many times, that party fails to do so either because they forget, or do not qualify. When this happens, the person that was not awarded the home, continues to be financially responsible for the mortgage. The person that was not awarded the home may find it difficult to qualify for another mortgage or may have a negative impact on their credit score if the person awarded the home fails to make a timely payment.
When people become aware of these negatives, people want to know what solutions, if any, are available. First, deeding the property out of a person's name will not change that person's liability on the mortgage or promissory note. In Texas, owning a property on a deed and being liable on mortgage are two different things. Second, the mortgage company will most likely not remove a person's financial liability on the note just because they got divorced or separated from a previous relationship. There is no law that requires a mortgage company to release someone for a note if a person gets divorced or ends a relationship.
Some potential solutions can be found below:
- You could force the sale via a partition lawsuit. Although in the state of Texas the right to partition is the co-tenant right, it can end up being a costly option due to legal fees involved. It is important to know that this cannot be used if the divorce decree awarded the property to one of the spouses.
- You could enter into a contractual agreement with the previous spouse.The agreement could possibly mention how a party must refinance a loan or be forced to sell the property and include financial penalties for late payments. The agreement could possibly mention how a party must refinance a loan or be forced to sell the property. Always be careful with these agreements and read them thoroughly.
When dealing with legal situations, it is important to always reach out to someone who practices that area, simply for the fact it is better to be informed and aware, than to face legal consequences later on down the road. If we can help you with your real estate needs, please don't hesitate to call us at 903-347-2447.