How do you remove someone’s name from a mortgage? We bought a house together, but the relationship has not worked out, I understand that we can deed the property over to just one of us, but does that eliminate any responsibility under the mortgage? Neither of us can afford to refinance the house, and we only bought it a few years ago, so there is no equity.
A mortgage is a contact between the people borrowing the money (you) and the entity giving you the money (generally a bank). To modify the terms of the mortgage all parties must agree to it, so if you wish to modify your mortgage by removing one named individual on the loan, both of you, and the bank must agree to the modification. If you review your loan documents you will generally find that the bank will not allow such a modification.
Now that is never an absolute statement, you can always approach your bank and ask them if they would allow the modification, and what would the terms be to do so. Some banks, for a fee, and a new credit report and financial background check on the person remaining on the loan, will allow it, but generally only if there is substantial equity in the real property. (Remember equity is the difference between what you could sell the property for, subtracting the balance of the mortgage and anticipated closing cost. If you financed 100% or more than 100% of the purchase price a few years ago it is unlikely you have any equity).
Now if one of you signs the property over to the other via a deed transfer (which must matrimonial attorneys will say…never ever do), than your name is off the deed, but not the responsibility for the mortgage. That means that if the person remaining in the house stops making the payments, or can’t make them financially, both of you are responsible to the bank, and both of you will be sued for the default. At that point the house really has to be sold, but if your name is not on the deed, than you have no say in whether the house is sold, who will sell it, how much it will sell for etc. And since your name is still on the mortgage, your credit report will be affected by late payments, slow paying or non-payments, even if your name is not on the deed.
Now married couples going through a divorce may have a Separation Agreement or Settlement Agreement indicating who will be responsible for the payments, and holding the person not living in the house ‘harmless’ should the payments not be made. Let’s look at this.
The Agreement is between the married couple, the Bank is not a party to it, so the bank is not bound by this Agreement, and you can’t force the bank to accept that only one of the couple will be responsible for the payments. Now the Agreement does state that if the party agreeing to make the payments does not, that that person can be responsible to the other party for any loss, or damage to that person for the non-payment. Here’s the problem, you can’t get blood from a stone and if the person who is suppose to make the payments does not, and does not have an income or any other assets, you can’t get anything to cover the damage to the ‘hold harmless’ person.
The only way to absolutely get your name off of a mortgage is to re-finance the property into the one party’s name. Close the existing mortgage with both names, and take one only in the name of the person staying in the house. That person can borrow from family or their 401k to get the money necessary to refi the property. Otherwise, sell the house, and both of you will need to come up with any deficiency needed by the sale.
As always this is a general answer, to a general question. You should always consult your attorney about the specific issues that surround your specific needs.
If you have a question for Attorney Kukuvka, please forward it to: Cynthia M. Kukuvka, Attorney at Law, 330 E. Main St., Palmyra, NY 14522 or e-mail to cklaw@verizon.net.