Spouse Is Easier To Divorce Than A Mortgage

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"Divorce is one of the leading causes of foreclosure today," says William Martin, a lawyer who specializes in real estate with Eno, Boulay, Martin & Donahue, a Lowell, Massachusetts law firm. "The other major cause is a catastrophic health event." Health problems can leave a family unable to make regular monthly payments, and turn a mortgage into a financial burden. Divorce can turn a mortgage payment into a financial weapon. While a divorce decree can end or nullify a marriage contract, it cannot end or nullify a loan contract. Contract law is an entirely different legal matter. Ironically, it is much, much harder to break a loan contract than it is to break the contract that includes the phrase: "Till death do us part."

Quite often what happens in a divorce is that one spouse, usually the wife, keeps the house, generally because children are still at home. The husband is ordered to continue to make mortgage payments, usually until the last child turns 18. The court wants to keep the house intact until the children are grown.

The court doesn't always get what it wants. If both the husband's and the wife's names are on the mortgage, the lender doesn't care who makes the payment. Lenders are not really interested in divorce decrees and court orders that spell out who is "supposed" to pay. All they want is their money. Regardless of any sort of court order or divorce decree, if they don't get it from one spouse, they will go after the other one. If they don't get it from either, they will foreclose.

"The problem is," Martin explains, "that some husbands force homes into foreclosure." They refuse to make the payments. They can afford to make them, but they just won't. They would rather have their own credit records and histories suffer than do anything "for her." In today's society, and depending upon income and who has custody of the children, the non-paying spouse is not always the husband. It could be the wife who would rather have her own credit records and histories suffer than do anything "for him." The reality is that if the payments are not made, both parties' credit histories and reports will suffer. This could inspire the person who isn't living there to get his or her name off the mortgage by "encouraging" the ex-spouse to refinance.

"Typically," Martin points out, "divorce decrees and court orders cannot bind a third party." Many people coming out of a bitter divorce would rather spend more on legal fees to avoid making payments than the payments themselves cost. Lenders normally begin foreclosure proceedings after three consecutive payments are missed, but the foreclosure process itself takes several additional months. By the time a delinquent spouse actually appears in court to explain why the court-ordered payments haven't been made, the house might already have been foreclosed and sold to a new owner.

Martin says the smart thing to do when there is a divorce is to put the house in one name; the name of whomever lives there. "You want to get ownership and financial responsibility for your assets. In order to do this, the party who lives on the property will refinance the loan, and do so as quickly as possible, putting it in his or her name. I advise that person to become the sole owner and get the property transferred into his or her own name and get a new loan. You certainly don't want to be in a situation where your continued ownership is contingent on some other party's obligation to pay," especially when you are not on speaking terms.

Martin admits there is often a problem with this approach, especially with newly single moms. "They do not always have the ability to get a loan in their own name, and have no choice but to hope that the court order is obeyed." There is more at stake than simply income here. The amount of equity in the house can also be an issue. The more equity there is, the lower the requirement for getting a loan. It's much more difficult to get a 100 percent mortgage than it is to get a 70 percent mortgage.

Even if the spouse who lives in the house can afford to get the loan, the court will very likely have to be involved since the other spouse has an interest in the property as well. Once the house is put into one spouse's name--the name on the loan--the other spouse may have no claim on it, depending upon the divorce decree.

"You need court approval to allow one party to refinance," Martin explains, adding that it is easier to get approval if one partner is refusing to make court-ordered payments. Martin says there may be some minor differences depending upon state law, but as a rule, a judge's order is all that is needed for one spouse to refinance the home and take the other spouse's name off the contract and the deed. "You need to collect documentation in order to show proof of who is actually making the monthly payments, but that is usually pretty easy to establish."

There could still be legal wrangling over what one spouse might owe the other in terms of equity in the house, but legal wrangling is often what a divorce is all about. Living with legal problems is often preferable to living with one's spouse. Those problems may be easier to live with once the house is out of danger of being foreclosed.