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Removing a Person from a Mortgage

When two people decide, whether they’re married or not, to buy a home, they’re probably considering what a great idea it is.  If later, they rethink the decision and determine to go their separate ways, simply deeding the home to the remaining person may not solve the potential liabilities.

In the case of a marriage, the divorce court can determine who can live in the home and who is responsible for the payments and upkeep and even which party gets title to the home.  What the court cannot change are the terms of the loan which is a contract between the lender and borrower at the time the mortgage was made when the parties were still married.

When two people originate a mortgage, both people remain “jointly and severally” liable for the loan.  Regardless of any mutual agreement between the parties or even a court decision, the lender still holds both parties who originally signed the note liable and can come after both or either if there is a default. 

Deeding one’s rights to the property conveys title but it doesn’t affect the note. 

Two solutions to the issue would be the following:

  1. Sell the property to a third party, pay off the existing mortgage, and divide the equity according to the divorce decree or mutual agreement.
  2. Refinance the home in the remaining party’s name only.If the divorce didn’t remove the spouse’s name from the deed, it will need to be done at this time.Depending on the terms of the divorce, there may need to be a cash settlement to the spouse when the equity is realized.

Some people may not become aware of this type of problem until years later when they might want to sell the property.  A situation like this involves legal rights and a person should consider legal advice.

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