August 3, 2016
A reader asks, “My husband is a co-borrower on a 2nd mortgage or loan with his ex-wife. In the divorce decree, it stated that she was to have the loan refinanced so his name would no longer be on the loan. Its almost been a year, and she has been late several times.”
Three weeks ago she moved out of county and allowed their ex-daughter-in-law to move it and make the payments. What steps should my husband take at this time?”
FHA loan rules in HUD 4000.1 don’t specifically factor into a question like this, except where specific requirements of the new loan are concerned. The real issues here are legal ones, and for that, the reader will need to discuss the situation with a lawyer with expertise in divorce laws, any applicable community property laws, etc.
The fact that there was a legal order or agreement regarding the final disposition of the loan is one reason why we recommend legal counsel. “Hire a lawyer” is the only kind of advice we can give in situations like these as we cannot dispense legal advice. Anytime a borrower or co-borrower has an issue like this, it’s best to discuss the legal options with an expert.
There are specific rules in situations like these the lender must observe-anytime a borrower chooses to refinance in order to buy out a co-borrower, there will be added paperwork required. According to HUD 4000.1:
“When the purpose of the new Mortgage is to refinance an existing Mortgage to buy out an existing title-holder’s equity, the specified equity to be paid is considered property-related indebtedness and eligible to be included in the new mortgage calculation. The Mortgagee must obtain the divorce decree, settlement agreement, or other legally enforceable equity agreement to document the equity awarded to the title-holder.”
These will be crucial documents in any refinance situation where the purpose to buy out the other co-borrower. When it comes to certain types of refinancing such as non-credit qualifying streamline refis, HUD 4000.1 states, “A Borrower is eligible for a Streamline Refinance without credit qualification if all Borrowers on the existing Mortgage remain as Borrowers on the new Mortgage. Mortgages that have been assumed are eligible provided the previous Borrower was released from liability.
Exception
A Borrower on the Mortgage to be paid may be removed from the title and new Mortgage in cases of divorce, legal separation or death when:
–the divorce decree or legal separation agreement awarded the Property and responsibility for payment to the remaining Borrower, if applicable; and
–the remaining Borrower can demonstrate that they have made the Mortgage Payments for a minimum of six months prior to case number assignment.”
While these situations can be more complicated than simply applying for a refinance loan, they are possible assuming the applicant financially qualifies.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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