A D-I-Y Don't: Divorce

Legal disclosure:  I am not an attorney, nor do I play one on TV.  Please do seek legal council if you are considering a divorce and before DIY legal documents relating to your marriage or mortgage or real estate.  🙂

I recently met with newlyweds who wanted to start developing a plan to purchase a home together.   The bride was previously married and terminated that union with a do-it-yourself divorce decree and saved money (or thought she did) by not utilizing an attorney.  When they did this several years ago, it made sense to them.  They were amicable and agreed to how they would divvy up their debts and what assets they had acquired at that time.   He would keep the house and the mortgage.   She would sign and record a quit claim deed.    This is where the trouble begins.

A quit claim deed does not remove borrowers from the mortgage and a divorce decree does not remove one’s liability from a mortgage (or other joint debts).

In my clients case, she is now liable for a mortgage on a property she has no interest in except for the debt. 

You would think a borrower could contact the lender and ask to have the mortgage modified by removing one of the ex’s assuming the person retaining the property qualifies for the debt on their own.    This is just not the case.

My client’s ex-husband decided to no longer pay the mortgage.   Foreclosure proceedings are scheduled to begin next month.   Her credit score has plummeted and the mortgage company couldn’t care less about her situation.   She is being sucked into the foreclosure on a property she has not lived in for years.    And she will not be able to qualify for a mortgage at this time.  It is emotionally and financially devastating.

Unfortunately, the only way to safely remove someone’s responsibility to the mortgage is by paying it off.   This can by accomplished by:

  1. Cash (paying off the mortgage)
  2. Selling the property
  3. Refinancing the mortgage

In addition, an ex’s debts from a divorce are factored into the debt-to-income ratio unless the ex has made the payments on time for the past 12 months and the debts are clearly listed in the divorce decree.   If the ex has been late once on an account over the past 12 months, that monthly payment is factored into the debt to income ratios of other ex trying to qualify for a new home.    This isn’t limited to mortgages; it can be joint credit cards, car payments…any joint debts. 

If you own mortgaged property with someone (married or not) and are considering dissolving your relationship, please do not “do it yourself

66 thoughts on “A D-I-Y Don't: Divorce

  1. Rhonda,

    Good article. I think there are many people who have gotten caught in this trap.

    FYI, on a related matter, I do believe, and I, too, am not an attorney, when a spouse files for divorce in King County it’s recorded on the title policy. Of course, check with an attorney to confirm, but too many times in the past when properties have sold, we have found out the seller’s true motivation for selling from review of the title report. Title reports can be sent to the buyer fairly quickly in a transaction. Imagine negotiating the price and selling a home. The buyer receives the title report with the divorce action listed and then the inspection happens and reveals a lot of repairs. Sounds like it could give the buyer the upper hand in negotiation with the seller.

    I think it is important to make sellers aware of what can show up on a title report and advise them to check with their attorney.

  2. Debra,
    Actually I don’t believe that a divorce is automatically recorded on the “title policy”. The incoming buyer is checked on for a preliminary title commitment and the title company may have a paragraph showing the filing (it may not be picked up or shown by all title companies).

    If there is a judgement filed, the divorce may also show on the commitment. A DIY divorce may not know to file a judgement.

    My past life, prior to mortgage, was title insurance and escrow. 😉

  3. Yikes! It is hard to believe that someone would actually try a DIY divorce and miss such a fundamental step in the process. I bet even those DIY legal kits that you can buy online would highlight why a quitclaim is not enough.

    For people that have an amicable divorce, they should at least invest a few hundred bucks (plus filing costs) in a mediator. They typically have experience as divorce attorneys and cost a lot less than hiring two separate lawyers to battle it out.

    I suspect there is a little more to this story than your client cared to explain (especially in front of her current husband). Perhaps her ex-husband tried to get re-financed on his own and couldn’t get approved by a lender? Rather than force a sale, maybe the ex-wife agreed to stay on the mortgage because she thought he would continue to make the payments.

    I guess this is one more reason to sit down and review credit reports with future spouses. “Um, Honey, why’s there a $450,000 mortgage listed on your report from Experian?”

  4. I’m not sure what step was missed. I think that’s just a consequence of one spouse keeping the property. As mentioned, the liability on the loan will continue no matter what. About the only two things that would make it go away is either the court ordering the other spouse to sell or refinance.

    The divorce decree can transfer title to the property. If it’s an out of county divorce (e.g. Lincoln county) you need to record a copy of the decree where the property is located.

    One thing that does tend to get missed on DIY divorces is credit cards. People will get divorced but keep the same credit cards, one spouse will get in trouble, and then the credit card company will go after the other spouse.

  5. laxtosnocos, it very well could be that the ex wanted the house. I personally had a similar situation years and years ago when I divorced. My ex wanted the house and could not qualify for it on his own. If I had allowed him to stay there with my name on the mortgage it would have:
    (1) caused me to not qualify for another home because since he would not have a record of paying the mortgage on time for 12 months, I would be required to qualify for BOTH mortgages (“ours” on the house he would be keeping and my new mortgage).
    (2) my credit would be at risk if he ever was late (or worse) on a mortgage payment.

    I had another case where someone was buying their next home, filed a quit claim deed and thought this “transfered everything” (including liability).  Luckily, the ex-husband made all the payments on time.  🙂   It can work, but I highly discourage it.  Like I said, something could happen to the ex somewhere down the road while your name is still on the mortgage (like loss of health or employment) or they can just decide to be a jerk.  It’s a huge debt to have hanging out there with your name on it and no control.

  6. Kary,
    Any lender and/or title company will require a quit claim deed to be recorded to have a clean chain of title. They would not accept the decree as a transfering of title.

    The danger is doing the quit claim deed when a mortgage is in place and expecting this to transfer the debt liability.

  7. Debra,
    It’s real easy to assume that such legal documents, like a quit claim deed or divorce decree, would make everything nice and tidy…resolving issues. Having a judgement filed can be an important step in the process as well.

    Again…I’m no attorney! 14 years in title insurance didn’t hurt me none. 😉

  8. Rhonda, the title company will look for the decree if you tell them where it is. My wife doesn’t have a quit claim from her ex, and we’ve refinanced. And we have a preliminary commitment showing title vested in her.

  9. Kary, if I didn’t know you better (actually, I don’t know really know you), I’d assume you’re an attorney since you’re so fond of debating. 😉

    Yes, I know the title company will look for a decree. The title company (I’m speaking of local title companies) will record a quit claim deed pursuant to the divorce decree.   Title companies do not want a “broken chain” of title.  

    If she is no longer living on that property that she had with her ex, and you qualified with the mortgage on “that property” and your current home and the ex has not been late on the mortgage, then you would probably be able to refi. There are other factors for consideration, Kary. When/if your wife’s ex goes to refi, his lender may (most likely will) require a QCD for that property.

    My entire point of this post is that consumers should not assume that the decree and/or quit claim deed releases them from the liability of the mortgage debt (or other joint debts).

  10. No, we’ve refinaced twice, and there’s nothing other than the decree taking the ex off title. The deed of trust creditor wouldn’t just accept her signature on a new transaction if he still had an interest in the property.

    Deeds are not the only way to affect title. Another example would be where a spouse dies. The way it tends to work in practice is the insurance companies just look back for an insured transaction. The divorce decree hasn’t even been brought up in the last two transactions (the second refinance and getting the prelim). I’m not sure how much checking they really do once they see that prior deed of trust with just her signature on it. Perhaps they pull the decree (it’s recorded), or perhaps they just assume the other title company didn’t mess up.

    And again, as I mentioned, we have a preliminary commitment showing she’s the owner, and not him (the house is for sale right now).

    Getting an ex to sign a quit claim would be problematic if it wasn’t done at the time of the divorce. Really a QCD would be better if done at that time, but it’s not necessary.

  11. Kary, a lender may make an exception with the title company insuring the vesting. Without the QCD, you’re at the mercy of the title officer determining the level of risk involved insuring the property without the ex’s interest.

    Title companies typically only research properties back to an “assumption point” which is typically the last transaction (at least, this is how it was done when I was in title over 7 years ago). So if the property has had transactions insured by a title company previously, the exam will only go back to the previous insurance. This is another risk that title companies take. It’s quite possible with your scenario that a title officer made the decision based on the decree to not require a QCD from a “probelmatic” ex and transactions following that issuance of insurance have relied on that one TO’s decision or have assumed they covered all their bases.

    I’m not saying in my post that a quit claim deed is the only way to transfer title. I’m saying DON’T file one yourself and/or file a decree yourself and think everything is hunky-dory.

  12. Case in point, here’s a recent comment from my blog on a post I did on divorce a few months ago:

    “I am currently divorced; and the house was awarded to my ex-husband, but the mortgage is under my name; and my ex-husband has not made one payment in going on 2 years. My credit is very good; but I can not continue to afford to pay my mortgage and his mortgage as well. I submitted what we call an assumption of the mortgage, but he does not qualify, because he has bad credit and no income. What are my options? I cannot afford to continue paying this mortgage.”

    Some people might be able to afford both mortgages if the ex stops paying…even so, who wants to pay for the ex’s mortgage if this was not the agreement per the decree? Most people, cannot pay for the ex’s mortgage and their own. It’s the largest debt most people have. Don’t get stuck with the ex’s mortgage…get an attorney before the divorce is final.

  13. Can anyone tell me if I am liable for a home my ex purchased before our divorce was final? I looked at the King County Records and it shows his sale date as the 5th, date received in King County is the 10th and our divorce date is the 7th. Does the sale date differ from the date was received? I am currently looking to purchase my first home and wonder if this may be a risk.

  14. There are two ways to be liable on a debt. Directly signing it or indirectly if the debt was community debt (and then in a divorse situation I believe you’re only liable to the extent you receive community property). A debt entered that late is not likely to be community debt (that generally stops once the couple is living separate and apart). So assuming you didn’t sign on the debt, it’s unlikely it would affect you.

    In some of the examples we’ve been talking about the title insurance company has the final say on what flies. On this one I’d say it’s the credit reporting agencies. Pull your credit and see if that shows up. If it does, contact someone about getting it off because it sounds like it shouldn’t be there.

  15. Jeannie, you’re probably safe. Did you co-sign the mortgage with him or just acknowledge it (some lenders will require the future ex to acknowledge the deed of trust if a transaction is taking place prior to the divorce is final. This is not agreeing to the debt or assuming the debt).

  16. Whew! I did not co-sign the mortgage. It is not on my credit report. On the Title report he crossed out married and wrote in single. Maybe worst case he will need my signature to sell the property? He is a realtor now and probably knows what is necessary. Thank you for clearing that anxiety, now to house hunt for me!

  17. From my favorite Title Officer, Tim Daniels of Talon Title:

    “It is important for people to remember that the Quit Claim Deed and/or a divorce decree can transfer fee simple title to the property, but there is nor correlation between the transfer of fee simple title and the monetary obligations of the parties. Even, if the divorce decree states that the party acquiring the property is responsible for the underlying debt, without a court order requiring that the existing debt be refinance , both parties can be held liable.

    In addition to the three solutions you have outlined, a lender may review the proceedings and circumstances and prepare a document for recording that provides constructive notice that one of the borrowers no longer has any liability for the underlying debt as recorded under Recording Number…this is rare.”

    I have never seen a lender let another borrower off the hook in a divorce situation and it’s really a shame.  The lender (bank) often times loses a good borrower and the borrower loses their existing rate.  

  18. Hi Rhonda,

    I agree with both you and Tim D. In the messy divorce cases I’ve seen over my career when both parties assumed a quit claim deed would transfer interest AND liability, and then the one spouse failed to make the mortgage payment, in all cases the underlying lender looked to the other spouse to make the payments, and all the late payments plus the eventual foreclosure appeared on both credit reports.

    Always, always have the spouse that wants to retain ownership in the home refinance in his or her own name. They do not have to wait until the divorce is final to do the refi, but the spouse keeping the home will have to qualify on his or her own income.

  19. Thanks, Jillayne. Often times, I see people who just want to get the divorce over or “be nice” and they make assumptions and actions that are expensive (if not impossible) to correct later. Especially if things have gone sour with the ex…they might actually enjoy dragging the other down and dishing out some stress.

    If you don’t do your divorce right (with an attorney and forcing a refi with quit claim deed if one is keeping the residence); you’re allowing the ex to have a lot of potential power over you, your credit and finances. One late payment and woops…you don’t qualify for a new home or refi either.

  20. So, not much of a savings if you divorce, quit claim yourself off title, and don’t make your ex do a refi on your co-mortgage … You well could be in the ugly situation of having bad credit, owing on a mortage you don’t want to be part of any longer, and no legal method of selling your former property due to your quit claim.

    Either stay on title, or get rid of that joint mortgage.

  21. Karen, in that situation, someone might be better off considering selling the property. This is where an attorney would really make sense. More often than not, there is no savings in DIY divorce. Consumers need to understand and be informed of the risk of mortgage, marriage and divorce.

  22. I wish a divorce attorney would pop in here and say what the chance is a court would order a refinance. And if the spouse couldn’t refinance, order a sale. My guess is the former is probably possible but the latter possible but not that likely.

    I do know one sitaution where the court ordered a sale and it netted the couple very little (one of them didn’t want the sale). So perhaps it does happen.

  23. I also am not an attorney but I have seen enough divorce situations of clients, friends, and my own divorce to know that it is possible as part of the dissolution of assets to require that a property be either refinanced or sold to handle the split and/or payment of assets between the parties if there are no other financial options for payments between the parties. Sometimes the house is used as the resource for funds not because of equity position of the home but also for payout of retirement or other financial resources of the couple. It all depends on the divorce decree and the individual couple’s situation.

    In my own case, I did a very simple and amicable DIY divorce with an ex but we did understand the implications of the mortgage situation. I was on his mortgage for many years (I still trusted him completely) and he also helped me with buying my next home( he also trusted me). Only a few years later did we refinance (when rates were lower) each property and by that time we both had had significant rises in our incomes to qualify individually for our own homes. But, we are a rare case and we remain friends to this day.

    I’ve seen plenty of situations outside of even a divorce – such as siblings and investors – who are involved in owning property together that go through a similar issue. One client I helped sell an investment property for had had one sibling buy out another co-investor’s portion of a property but they only executed a Quit Claim and there was no refinance. A few years later the former investor found out his credit had been ruined because the brother of the family who managed the property hadn’t been paying the mortgage on time. The sister that bought out this other investor also didn’t realize a QC didn’t relieve the former co-investor of financial obligation – and these folks own about 15 different properties for a total of about 60 units (including apartments). You’d think they’d know better – but they didn’t.

    Many people don’t understand deeds, ownership issues, and mortgages. There is not enough public information about these issues that is easily accessible and understandable to most folks and it’s a darn shame. The internet and forums such as this one certainly help but not everyone has or knows the access to the resources.

  24. It takes 12 months of an ex making on-time payments before that mortgage payment is not considered for qualifying purposes. If your divorce is fresh, you’re going to need significant income to qualify for both mortgages (the ex’s and yours).

    Plus, if the ex is ever late, as Reba mentions, that late becomes your own mortgage late…and a mortgage late will dramatically drop your credit score.

  25. czb, I believe these days you have a 50/50 chance on having a successful marriage. I doubt all of the RCG contributors have been divorced. It is a life lesson and I’m glad that we’re open to sharing.

  26. JH: My husband and I are going through a divorce and own our home “free and clear.” My husband says that he is going to refiance my share of the payout and wants me to sign a Quit Claim Deed. Could there be any potential problems I should be aware of ?

  27. My wife was divorced from her ex and the divorce stated he would stay in the house & my wife would relinquish any personal interest in the property. She was on the deed and mortgage. He never made an attempt to have my wife taken off the deed or the mortgage. Whose responsibility would it have been in the divorce to do this or is it just one of those things that both parties should have been involved in?. He passed away a few months ago and now his daughter from a previous marriage as trying to force my wife into signing a quit claim deed. I know this will take her off the deed but not the mortgage. He had actually fallen a few months behind in the mortgage and it was going to be foreclosed on but someone brought it current after his death. I am curious if technically my wife is the true owner of the property as she is on the deed & the mortgage and he is dead. There was no will that we are aware of. The house was obtained between him & my wife during their marriage and his daughter never lived in the house.If my wife does not sign the quit claim deed can she be held in contempt of court? Can she be forced to sign it without the mortgage being paid off or refinanced by his daughter? Since he did not keep the mortgage current, can his estate be sued as there was a life insurance policy on the house that if either died it would pay it off. Since it fell behind the insurance was no longer valid so there is still a balance on the mortgage.

  28. K, I’m just coming across your message now. I’m not sure if it went into our spam bin or what happened. I’m not an attorney and if the decree states that she relinquished interest in the property, I’m not sure how or why she would claim an interest now. Regardless, it sounds like a challenging situation and you may want to consult with an attorney.

Leave a Reply