Who Gets the Mortgage?

Ex-Couples Find That It Isn't as Easy as It Used to Be To Get Out of Their Loan

Breaking up has gotten even harder to do for those who share a mortgage.

In years past, when home prices soared and people built plenty of equity, a borrower could easily get his or her partner's name off a mortgage by refinancing the loan. Those who did not want to keep the home could sell it for a profit. Everyone could walk away financially unscathed.

But these once-routine exit strategies have become less reliable in a soft housing market in which credit is tight. Home prices have dropped in most of the country. Lenders are more picky about which loans to refinance. And co-borrowers are now hard-pressed to disentangle themselves from loans they took out with spouses, relatives or friends.

"We're unable to do things now that we could do six months ago," said Steve Calem, vice president of real estate lending at American Bank of Rockville. "It's much easier to get into a mortgage with someone than it is to get out of a mortgage with someone."

One businessman in Arlington can attest to that.

The man discussed his situation on the condition that he not be named. He and his wife filed for a divorce more than two years ago. He wanted to keep their house and live there with their two children. She wanted her name off the mortgage. The couple split amicably and were fine with the arrangement.

But the lender balked. Rarely do lenders agree to simply remove a borrower's name from a loan. From the lenders' perspective, the more borrowers they have on the hook, the better the chances of getting repaid. In most cases, the couples qualified based on joint income.

So the only option left is to refinance in one owner's name. Even now, lenders will agree to that if a borrower has good credit, steady income and sufficient equity in the house.

The Arlington homeowner said he has all those things but does not want to refinance because his mortgage payments would jump $1,700 a month. His old loan has a 5.5 percent rate. A new loan most likely would be at about 7 percent. "It's been an 'Alice in Wonderland' experience," he said.

These challenges often come as a shock to splitting couples because many do not understand that a divorce court cannot force a lender to refinance or take a borrower's name off a mortgage.

A divorce court can only award a jointly owned house to one spouse and give that spouse a deadline to have the other removed from the mortgage. It is then up to the person retaining the house to work out a plan with the lender.

If refinancing can't be done within the court's timetable, the court can force the sale of the house and, in the D.C. region, appoint someone to oversee that sale. Until the lender agrees to a new loan, both borrowers are equally responsible for the one they have, said Greg McBride, a senior financial analyst at Bankrate.com, a personal finance Web site. "It does not matter who is living or not living in that house or how much more money one person makes," at least as far as the lender is concerned.