Mortgage 101: After a Divorce

Part of living in Midtown Montgomery is finding the right living arrangements. And there’s a lot more to getting a historic home than just worrying about upkeep and maintenance. As such, we at MML are happy to be able to offer periodic posts about buying property or dealing with the issues surrounding real estate transactions.

By Charles Edmondson

In the 24 years I have been practicing law, I have on numerous occasions been confronted with the situation where a husband and wife are divorcing and one of the parties is awarded the marital residence with the obligation to continue making the mortgage payments post-divorce. Whenever this situation presents itself, it is important to understand what legal rights come into play and, of equal importance, those that do not.

Most married couples have a mortgage on their home. Typically, that money was borrowed in happier times — well before the couple began having marital difficulties. The parties have executed, among numerous other documents, a promissory note and the subject mortgage such that their residence serves as security for the note. By doing so, they are both jointly and severally liable to honor the debt. That is to say, a creditor could pursue one or both of the parties to collect payment.

When the divorce happens, the court may order that the residence be sold, but often one of the parties (the awarded party) is awarded the property along with the obligation to pay the mortgage. It is important to note that the court has no jurisdiction over the mortgage company — because it isn’t a party to the litigation. As such, the court can’t rewrite the terms of the mortgage loan and thereby relieve the one party who was not awarded the house (the non-awarded party) from liability for the debt. In addition, if the party that gets the house can’t make the mortgage payment, it can still end up hurting the party that didn’t get the house! The court’s order does not serve to insulate the non-awarded party (who remains on the contract) from potential negative credit implications in the event the awarded party fails to pay the mortgage or even make timely payments.

If possible, the non-awarded party should see to it that the divorce decree provides for the awarded party to “hold harmless and indemnify” the non-awarded party as to the obligation to make the mortgage payments. Again, although such a provision will not affect the rights of the mortgage company, such language will give rise to legal damages which the non-awarded party may seek from their former spouse should the latter default.

In addition, the non-awarded party should seek to have the divorce decree say that the awarded party’s mortgage debt can’t be discharged in bankruptcy (so that the non-awarded party can be further protected should their former spouse go that route).

In the best of circumstances, a divorce decree can require the awarded party to refinance the mortgage within a given period of time. It can otherwise provide policing terms should such refinance not take place — to include, but not be limited to, listing the property for sale and forfeiture of possession or even title by the awarded party in favor of the non-awarded party.

It is important to realize that the non-awarded party’s responsibility for the marital mortgage debt remains for as long as the mortgage is unpaid. This may go on for a long time and could potentially affect future credit opportunities.

So, like parents with kids, although you may be divorced, you still have something to talk about!

Charles Edmondson is a Montgomery attorney who focuses on real estate and property law.

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