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


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