Mortgage headache can be one more pitfall after divorce

Published 9:00 pm Saturday, May 19, 2001

Q: My daughter and her new husband are trying to get a loan for his business, but the mortgage on my daughter’s ex-husband’s house shows up on her credit report as a debt. She contacted the mortgage company, but it won’t take her name off the loan, even though her ex-husband bought out her interest in the house. The ex-husband tried to refinance the mortgage, but he can’t qualify for a new loan based on his income alone. What can she do? Will she be stuck with that mortgage on her credit report forever? How will that affect her ability to borrow money in the future? — J.B., Bellevue

A: With the number of divorces in today’s society, this is a fairly common problem. During the property settlement stage, the primary residence is often deeded over to one person, with the ex-spouse receiving a cash settlement for his or her share of the equity.

This is usually accomplished via a quit claim deed from one party to the other.

By signing a quit claim deed, an owner gives up all ownership rights to the property — but not the responsibilities. In other words, the mortgage lender doesn’t care that your daughter is no longer on the title to the property. She signed the mortgage documents when the home was purchased, so she is still fully liable for payments on the loan.

The lender will not release her from that financial liability for the simple reason that it would rather have two borrowers on the hook than one. Also, you said that the ex-husband does not have enough income to qualify for the mortgage by himself, so you can understand why a lender might be reluctant to release your daughter from financial responsibility for the loan.

As it stands now, they can still come after her if the ex-husband fails to make the payments. However, this situation is not really as bad as it appears. As long as the ex-husband continues to make the mortgage payments on time, the loan will have no adverse impact on your daughter’s credit report.

And even though she cannot have the mortgage removed from her credit records, she can provide copies of her divorce documents to show that her ex-husband received full title to the house and assumed sole responsibility for making the mortgage payments. This documentation, along with a letter of explanation from your daughter, should be sufficient for most lenders to remove the ex-husband’s mortgage payment from her list of current debt obligations for purposes of qualifying her for a new loan.

Some mortgage companies are more flexible than others on mortgages with ex-spouses, so she may have to shop around a bit.

I know that this is a lot of hassle and extra paperwork, but for now, it’s the only way she’ll get a new loan. And your daughter will probably have to jump through the same hoops every time she applies for credit until her ex-husband finally pays off his current mortgage, either by selling the house or refinancing. I recommend that your daughter keep extra copies of her divorce papers handy so they are readily available every time this issue comes up.

Mail your real estate questions to Steve Tytler, The Herald, P.O. Box 930, Everett, WA 98206. Fax questions to Tytler at 425-339-3435, or e-mail him at economy@heraldnet.com

Steve Tytler is a licensed real estate broker and owner of Best Mortgage, Inc. You can visit the Best Mortage Web site at www.bestmortgage.com.