03/25/08: Divorced But Still On The Mortgage
By Benny L. Kass
Q. My ex-husband and I bought a house in 1995. We divorced in 1999, and pursuant to our divorce decree, he kept the house and I moved out. We both remarried in 2000. My new husband and I have a new mortgage on our home, after fighting to prove to the lender that my ex has the previous house.
I know my ex has changed something on his mortgage. He was making higher payments for a year after he fell behind a couple of months. I really don't know the details because I no longer own the house.
Is there anything I can do to get my name removed from the mortgage so that my ex's late mortgage payments do not affect my credit? I have excellent credit and have written to the credit bureaus, but his late payments keep showing up on my reports.
A. This is a common problem, largely caused by divorce lawyers who do not understand real estate and mortgage law.
As is often the case, you transferred ownership of the house to your former husband, but you remain legally obligated to make the mortgage payments.
That's because when you and your ex-husband bought the house, you both signed two legal documents: a promissory note and a deed of trust.
The note is an IOU. The two of you - jointly and severally - agreed to make the monthly mortgage payments. "Jointly and severally" means that each of you is fully responsible for meeting the terms and conditions of the note. And one of the conditions is that you must make the payments on time every month or both of you will be in default.
You also signed a deed of trust, which is the mortgage document. It is recorded among the land records where your property is located. It is the security that the lender needs to extend you the mortgage loan.
You both deeded the property to a trustee selected by your lender, who holds the property in trust. That means that if you ultimately pay off the mortgage, the trustee will release the deed of trust. If you and your ex-husband go into default, the lender has the right to tell the trustee to foreclose on your property.
Although you are no longer married to your ex-husband, your name is still on the note and the original deed of trust remains in place.
The bottom line is that your divorce lawyer should have required that your ex-husband refinance the existing mortgage within a set time.
Appropriate enforcement mechanisms should have been included in your separation agreement, such as requiring that the house be sold if it couldn't be refinanced. If your ex-husband refinances the house, that would completely relieve you from any further obligations under that old promissory note.
So how did you manage to get a loan for the house where you live now, even though you're still legally tied to that other mortgage? Lenders will show a degree of flexibility, because your situation is not unique.
Edward J. Achtner, a senior mortgage loan officer at Bank of America, said his bank has procedures for dealing with post-divorce cases such as yours. It won't count that previous debt against the applicant if, "there is a judicial decree stating that the old mortgage is no longer the responsibility of the applicant, and we see that the old mortgage has been paid by the ex for a period of 12 months."
He said, "We must have the actual divorce decree and either get 12 months cancelled checks or a letter from the mortgage company that services the old mortgage."
However, it is often difficult to get that information from mortgage companies, because they often do not know who sends in the check. And with electronic and automatic payments, this becomes almost impossible.
Given that your divorce did not require that your ex-husband refinance the house, what should you do now?
First, because you are still on the mortgage, you have the right to know whether it is being paid on time. If you learn that your ex-husband is paying late or not at all, you should immediately write to all three major credit reporting bureaus. Explain that you are no longer the property owner, that your ex-husband is required to make the payments and that his lateness should not hurt your credit.
Second, if you want to refinance your current home or buy a different one, you should seek a lender that understands these situations and is willing to work with you.
However, as Achtner pointed out, if you can't get the divorce decree and the documentation showing that the loan has become your ex's responsibility, things become more complicated. "Then we do need to consider the old mortgage into the debt-to-income ratios, and that can make a substantial difference in terms of qualification," he said. Lenders will review each loan application on a case-by-case basis.
These are unnecessary complications that should be headed off in advance. Couples who are divorcing should address this issue during the process, instead of waiting until it is too late.