Most married couples apply for mortgages in joint names. Two incomes are better than one in the eyes of the lender and they assess joint incomes when determining how much to lend. The most common reason to remove a name from a joint mortgage is divorce. If the home is not sold at the time of divorce, and the person leaving the home no longer wishes to be held liable for the joint mortgage debt, then removing their name from the mortgage is the only way to be released from this joint liability.
Whilst the mortgage remains in joint names the lender can pursue both parties for any defaulted payments, and the person no longer living in the home can have their credit score negatively affected if the person who remains misses a payment. The most usual way to remove a name from a joint mortgage is for the home to be refinanced into the name of the person who will remain in the home, which is an expensive process.
Not many mortgage lenders offer the less expensive choice of allowing the remaining party to assume the loan and release the other party from liability. However some few lenders are amenable to this alternative route and you should first inquire if your lender offers divorce mortgage assumptions.
In order to facilitate this process you will require your divorce decree and a quit claim deed signed by the party to be removed from the mortgage. Additionally the person assuming the mortgage will be assessed by underwriters to ensure that there is sufficient income to assume the payments, and a good credit score.
Divorce mortgage loan assumption is not widely available which leaves refinancing the only other option. Refinancing can be done through the current lender or another mortgage provider. Once again a copy of the divorce decree is necessary, as is a quit claim deed. It is possible that the person who wishes to be removed from the joint mortgage finds the remaining party refuses to refinance and thus they remain liable for mortgage loan.
It is important that this is addressed before the divorce is finalized as there is no legal recourse afterwards to force the remaining party to refinance. However prior to a divorce being finalized it is possible to for a legal judgement to be issued as part of the divorce, which calls for the remaining party to either refinance or sell the property.
Refinancing may not always be an available option. Negative equity or insufficient means of the remaining party may result in the lender refusing a refinance option. This can result in the mortgage remaining in joint names with both parties held liable for the debt.
Source: woman’s divorce com.