Q: Do you know of any way to remove an ex-spouse's name from a mortgage without the very costly recourse of refinancing? Our house was purchased in 1976, but my wife and I separated in 1977. The children and I have remained in the house and I have been making all of the payments by myself. Our separation agreement states that her name is to be removed from the mortgage early next year. I have bought out her equity, and have received and filed the quit claim deed; thus the house is now recorded in my name alone. However, the mortgage company is unwilling to remove her name from the mortgage, despite numerous requests. Please advise.
A: Unfortunately, most lenders are unwilling to cooperate with borrowers in your situation.
The situation used to be worse. Under the so-called "due-on-sale" clause in most mortgages, the transfer of your wife's interest in the property to you was considered by many lenders to trigger that clause. Thus lenders used to call the entire mortgage due and expected full and final payment -- despite the fact that the mortgage may have had many more years to run.
Fortunately, congressional action a couple of years ago made it clear that such a transfer between husband and wife was not to be considered a trigger of the due-on-sale clause.
But the name removal situation is more difficult. Lenders take the position that they are concerned about their security, and since you and your wife both agreed to repay the amount of the loan, you both should continue to be obligated.
From your point of view, it really makes no difference whether your wife remains liable under the note. That is her problem, not yours.
However, it is a problem for your wife, and here are some of the potential consequences.
If your wife wants to obtain a new mortgage, or obtain any kind of credit for that matter -- she must list the outstanding mortgage on your house as a contingent liability. It may very well be that many lenders will be unwilling to make a new loan to her, because of this outstanding obligation.
Refinancing is, of course, one method of removing her from the obligation. In effect, when you refinance, you pay off the old loan, you and your wife are both relieved from the financial obligation under that old note, and only you become liable under the new note.
As this column has suggested on many occasions, you should seriously consider refinancing, if this is at all financially possible. You indicated that you purchased your house in 1976, and presumably your mortgage rate is somewhere between 9 and 10 percent. Your monthly payments are now being applied to a higher amount of principal and your interest payments (and thus your tax deduction) are gradually diminishing.
From your wife's point of view, some lenders are willing to ignore -- or at least close their eyes to -- the contingent liability under certain conditions. If, for example, your separation agreement makes it clear that you alone are responsible for payment of the note, and indeed if you will give your wife an indemnification whereby you agree to hold her harmless against any contingent claim on that old mortgage, many lenders will be willing to deal with your wife despite that contingent liability.
Thus, while I know you want to make a clean break and have your wife's name removed from the mortgage, if that liability does not really affect your wife, I suspect that you should keep the status quo. Of course, your ex-wife may force you to stick to the terms of your agreement, and thus you may have no choice but to refinance.