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Mortgage and Divorce: What Happens to the Mortgage?

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mortgage-divorce-basicsMortgage and divorce are not good bedmates! When love dies money tends to raise its evil head. That’s when people can suffer and nobody ever really wins. The problem is that the mortgage does not disappear and must be paid. Many couples are now more likely to be dividing their liabilities than their assets!

Normally, the mortgage will be by far the largest of these liabilities, and each name on the mortgage note is liable to pay it, divorced or not. Marriage is not a condition of mortgage. That means that irrespective of the state of your marriage, the names on the note are due to pay. It cannot be stated any simpler. Your divorce is irrelevant to the lender, and if it is not paid in full each month the loan will be foreclosed.

Mortgage and Divorce: Property Options

So, what are your options when mortgage and divorce are involved together? In the early stages of a marriage breakup, the last thing the two people involved will be thinking about is their finances – normally! Some divorces are planned by both members of the partnership so that each suffers the minimum of financial loss. Most, however, are neither friendly nor acrimonious – just heartbreaking, and the last thing they are thinking about is “who pays the mortgage?”

However it must be paid, and we are assuming here that the mortgage is in both names. If it is only one name, then there is no issue: that one person and is responsible for the mortgage payments. It then becomes part of his or her estate when the divorce settlement is discussed.

Mortgage and Divorce: Three Solutions

However, if the property is owned by both jointly, there are fundamentally only three solutions:

1. One spouse purchases the half owned by the other. This can be in the form of a cash payment, a legal agreement to make a regular payment until the purchase price has been settled, or by taking out another mortgage for the other 50% of the property.

2. The property is sold, and the mortgage is cleared. The proceeds are split 50/50. The problem with this is that neither ex-partner has a home to live in unless they have made alternative arrangements. This is rarely the case with most divorces.

3. Sometimes there is negative equity, where more is still owed than the property is worth. They would be unable to sell unless the lender agreed to a short sale. This brings us to the third option: refinance. This is possible if one spouse qualifies for a refinance and the other is prepared to let the property go.

There are no other options with mortgage and divorce issues. Before deciding on a divorce, couples might consider other possibilities, such as each living in their own half of the property. All too often, married couples with a mortgage fall out with each other and decide on a divorce without giving thought to their marital home.

Maybe if they thought of that, by the time they had made suitable arrangements about what happens to the mortgage they could have forgotten their tiff! Sometimes it has gone too far for that. Mortgage and divorce are very poor bedfellows! For more information, please contact Anthony DiLeo at (732) 264-2700 x 18, or email at anthony@intercountymortgage.com

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