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

By Dina ElBoghdady
Washington Post Staff Writer
Saturday, December 1, 2007; F01

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.

Nor does it matter whose name is on the title, the legal document that shows ownership of a home, said Heather A. Cooper, a divorce lawyer at Cooper Ginsberg Gray in Fairfax.

A common misconception is that getting your name off the title clears your responsibilities, Cooper said. But the two are unrelated. If you take your name off the title, you lose ownership, but as far as the lender is concerned, you're still responsible for the mortgage.

The norm is to not transfer the title until the mortgage is refinanced by the spouse who will retain the property.

But these days, an increasing number of couples never get that far, Cooper said. For some, refinancing a loan can be prohibitively expensive. For others, the refinancing option may not even exist because neither person can qualify for another loan on one income.

"As a result, more couples are having to put their houses on the market and go their separate ways," Cooper said.

For those who own a home together but are not married, the challenges of a split are even more daunting.

That's because the domestic laws that govern a divorce offer protections that are not extended to most unmarried couples, said Jayson Amster, a lawyer in Upper Marlboro who handles divorces.

In many states, the divorce court's goal is to divide property equitably and fairly, Amster said. It's irrelevant who pays the mortgage because the payments are made with "marital money." Even if one spouse did not pay a nickel, the court will divide the property so that each gets a fair share of its value.

"But none of this applies for people who are not married," Amster said. "In that case, you are just two people who can fight out your problems in court like anyone else."

For instance, an owner can file a partition suit, which asks the court to determine what will happen with the property when the co-owners part ways. In such cases, judges often order that the house be sold and any profit split.

"You're not left without a remedy. It's just not as neat and clean as a divorce remedy," said Jamie A. Mastandrea, a lawyer in Burke who handles real estate transactions.

To avoid the many pitfalls, mortgage banker Mark Fegani advises, unmarried people should plan ahead before buying together. His advice applies equally to those in romantic relationships and those buying together for other reasons.

"Life is so unpredictable that it's tough to conceive of everything that can possibly happen to you," said Fegani, president of OlympiaWest Mortgage in Vienna. "Have some conversations about what happens 'if,' and fill in the blanks."

Then put those what-ifs in a binding legal contract, said Marna Tucker, a divorce lawyer and senior partner at Feldesman Tucker Leifer & Fidell in the District.

Engaged couples can write a prenuptial agreement. Spouses can even do a postnuptial agreement if they have concerns about their home. And unmarried co-borrowers should have a lawyer write a contract.

Start by asking yourself: How are we going to own the property?

There's more than one way to do it, Tucker said. For instance, joint tenancy with right of survivorship is a form of co-ownership that allows both borrowers to jointly own the home. If one dies, the other becomes the sole owner. By contrast, tenants in common each own a certain percentage of the home; when one dies, his share may go to other beneficiaries.

Then consider who is going to pay for what, Tucker said. Think beyond the monthly mortgage payment: Who pays taxes? Who pays for renovations? Who pays if one borrower loses a job?

Also worthy of discussion is what happens if the co-borrowers split, she said. Can one buy the other out? Should they agree to sell the home? Who will sell it? How will they set the price? If it's sold, how will the proceeds be divided?

Absent a legally binding contract that clearly deals with these issues, Fairfax financial planner Ric Edelman tells his clients, never buy a home jointly with someone to whom you are not married because doing so can be highly problematic, even among relatives.

A few years ago, Edelman talked clients out of buying a beach house with another couple because "it had disaster written all over it."

The couples had known each other for three years, and they had children of similar ages who got along well.

But Edelman urged his clients to think about the what-ifs. What if one couple has marital problems, health issues or a job relocation? Who will be responsible for repairs? What if the kids grow apart? What if one couple wants to sell but the other does not?

The key for anyone thinking about signing onto a mortgage with someone other than a spouse is to consider whether you can afford the loan on your own, Edelman said.

If you can, go for it.

If not, reconsider.

"If you can't afford it on your own, then you're not ready to buy a house," Edelman said. "It's that simple."