Divorce Mediation Blog

Refinancing the Mortgage After Divorce: When Can You Do It?

Thursday, July 12, 2012

One issue that comes up in every divorce in which the parties own a home is: when can the party receiving ownership of the home obtain a release of the other spouse’s obligations under the mortgage by refinancing this obligation? This is important to the spouse who is leaving the house behind for at least three (3) reasons: 1) he or she remains liable to the lender for the underlying mortgage loan note, despite the allocation of responsibility between the parties under their settlement agreement; 2) because late payments or even default by the other party can still hurt his or her credit rating; and 3) this person’s ability to buy a replacement residence may be stymied by his or her continuing liability on the joint mortgage.

As important as a release is to the spouse who needs a new home, it is equally necessary to reach a re-finance agreement that the party remaining in the home (often to provide continuity for the parties’ children) can actually accomplish. For years, divorce agreements required this to be accomplished within 3 or 4 months after divorce, on the assumption that this was enough time to apply to multiple lenders, go through underwriting and close. These rote provisions are no longer sufficient.

The 2008 banking crisis and subsequent taxpayer bailouts were caused partly by bad mortgage lending practices. Since then, mortgage underwriting has become more stringent with regard to the reliability of alimony and child support payment streams as qualifying income for the granting of a new mortgage. This is true, even where the new interest rate and monthly payment is lower than the existing one, where the applicant’s credit history is clean and even when the party has substantial assets.

While lenders vary in their requirements, one current practice seems to be that if the former spouse is relying on the anticipated alimony and/or child support stream to provide more than 30 per cent of income qualification, that cash flow will have to be a reliable, documented fact, for a full year. Banks will differ on when they “start the clock” on that year, whether a year from the divorce judgment, or perhaps earlier when there has been a formal, enforceable and collected support payments.

Of course, this delay increases the chances that the interest rate environment will be different at the time of the actual re-financing transaction, as compared to the known circumstances at the time of divorce. Delay may benefit of the re-financing party (if interest rates drop); or the opposite could occur (more likely in the current historically low rate environment).

In divorce mediation, this issue needs to be carefully discussed and considered so that the legitimate needs and concerns of both parties are addressed as fairly and as effectively as possible.

Get e-mail notifications of new blog posts! Enter email address below.:

Delivered by FeedBurner

other articles

recent posts


alimony orders divorce mediation Levine Dispute Resolutions divorce arbitrator mediator family and probate law disputes alimony how baseball arbitration works Child Support Guidelines self-adjusting alimony Levine Dispute Resolution Center LLC divorce mediators Massachusetts alimony divorce and family law family law divorce agreement pre-ARA alimony Cohabitation family support divorced divorce arbitrators family law arbitrator traditional negotiations Matrimonial Arbitration alimony reform legislation Act Reforming Alimony in the Commonwealth Major League Baseball Arbitration family law arbitrators lawyer lawyer-attended mediation health insurance family mediation Boston Divorce lawyers Uniform Arbitration Act alimony statute Same Sex Marriage med-arb mediation facilitated negotiations Massachusetts Lawyers Weekly MLB labor agreement Levine Dispute Resolution Center Levine Dispute Resolution health coverage annulment Massachusetts Baseball med/arb dispute resolution disputes divorce judgment resolve disputes SJC rehabilitative alimony divorce process Obamacare private dispute resolution Massachusetts Alimony Reform Act special master conciliation arbitration litigation divorce arbitration General term alimony divorce mediations child support mediators Alimony Reform Act Family Law Arbitration family law mediation Chouteau Levine DOMA fraud Massachusetts divorce mediators Massachusetts alimony and child support medical benefits alimony law separation mediations COLA Baseball Arbitration Divorce Agreements support orders Baseball Players divorce and family law mediators Self-adjusting alimony orders IRC §2704 high-risk methodology LDRC The Seven Sins of Alimony Massachusetts divorce lawyers Massachusetts lawyers arbitrator arbitrators divorce mediator divorce lawyers Defense of Marriage Act divorce litigation