Q: My husband and I are in the process of getting a divorce. We have agreed that the family home, currently in both our names, will be transferred to me, and I will be obligated to make the monthly mortgage payments. I have been warned that this might trigger the due-on-sale clause, causing me to lose the favorable 9 1/2 percent mortgage on the property. Do you have any advice?
A: It would take a very hard-hearted lender to want to accelerate your mortgage under the circumstances. However, some lenders are unsympathetic to such situations -- especially when they see the possibility of erasing a low-interest loan from their books.
The standard due-on-sale clause says that if all or part of the property is transferred by the borrower without the lender's prior written consent, the lender has the option to demand the balance of the mortgage. The clause usually excludes the creation of a second trust or a "purchase money security interest" for household appliances, transfer when a joint tenant dies, or the grant of any leasehold interest of three years or less not containing an option to buy.
Lenders are concerned with two major factors. The first is the ability to make the monthly mortgage payments. Needless to say, if you do not have an income, or do not have any additional assets, a lender will be quite concerned about your ability to make the monthly payments.
Second, lenders are concerned about obtaining a greater yield. And your 9 1/2 percent mortgage in today's double-digit market is a thorn in the lender's pocketbook.
However, it has been my experience that most lenders will be sympathetic to divorce situations and will not call the loan merely for that reason.
I suggest the following approach: You or your lawyer should call the lender and ask about the policy in this kind of situation. Do not identify yourself or the property, but try to determine the general policy. Most lenders will permit the transfer at the same rate, providing, of course, that you are able to make the monthly mortgage payments.
However, your husband should be aware that he probably will not be released from the obligation to make the payments in the event you are unable to keep current on the note. The lender relied on the credit worthiness of both of you and is not obligated to release your husband from this obligation just because of your personal circumstances.
Here is an important tip: Have your lawyer check with the recorder of deeds in the county in which your property is located. If the property is transferred before the divorce is final, you may be able to save the transfer and recordation tax that would otherwise be imposed on the transaction.
Incidentally, it should be pointed out that there is no problem with transferring the property if your old mortgage was obtained through the Veterans Administration (VA) or the Federal Housing Administration (FHA). Both agencies' loans are freely assumable. Nevertheless, it is a good idea to inform the lender of the transfer.
Also, your transfer will have tax implications. You should discuss these with your tax adviser so as to assure yourself that you are taking the right steps. These tax considerations are complex, and since everyone's tax problems are different they cannot be simply summarized in this column.