Thomas M. Clark, Esq., (717) 221-7952, tclark@tuckerlaw.com

An agreement to refinance a joint mortgage to remove one of the parties from the obligation at the time of equitable distribution is imperative if the parties are both obligated on the mortgage and one of the parties is keeping the marital home. It is important to include language in any settlement agreement regarding what will occur if refinancing is not possible and to put time limits on the party seeking refinancing to obtain a mortgage commitment. Any settlement agreement should set forth the details regarding the sale of the home including the listing price, the choice of listing agent, and the responsibility of the residential party to pay for all costs associated with the home, including any major repairs such as a heating system or roof if the party seeking to retain the home is unable to qualify to refinance. Parameters can also be set regarding the amount and time frame for reduction to the asking price or the replacement of the listing agent. The transfer of title to the property by way of deed should be contingent on the refinancing occurring. A deed can be signed and held in escrow by the non-residential party’s attorney until the time of the closing on the refinancing.

Refinancing into a single spouse’s name is similar to a traditional refinance, with the addition of the execution of a new deed. The refinancing spouse may refinance only the amount due on the mortgage or he or she may elect to refinance the mortgage in a greater amount, up to the equity in the property, if he or she is “buying out” or paying a lump sum cash payment to the other spouse as part of the marital settlement. If one spouse plans to keep the property and both spouses are on the mortgage, it is imperative that the parties refinance the mortgage, and not just agree that the remaining spouse will be responsible for the repayment. Even if the parties’ agreement includes a clause that the remaining spouse will indemnify and hold the other spouse harmless, that other spouse remains responsible for the mortgage in the eye of the lender. The other spouse would then have the unnecessary headache of seeking reimbursement in court, and the whole process could cause damage to his or her credit that could not be corrected by the divorce court.

Similar to a traditional refinance, the refinancing spouse may shop around for a mortgage at the best possible rate. The spouse may go through a mortgage broker or seek out the best rate on his or her own.  Once the spouse has located a loan at an acceptable interest rate, he or she will apply for the mortgage in his or her name alone. The attorney is often not involved in this process. The lender will be looking into all debts, assets, and income belonging to the refinancing spouse. This means that, if at the time of refinance, the refinancing spouse has significant joint debt with the relocating spouse, it could negatively impact his or her ability to qualify for a loan. When a party is planning to refinance, it is important to build a time cushion into the agreement. This way, if the other spouse is responsible for repayment or assumption of some of the joint debt, it can be arranged that the other debt is assumed or paid prior to the mortgage refinance so that the refinancing spouse can qualify.

The quitclaim deed is where this process differs from a traditional refinance. The relocating spouse will have to relinquish his or her rights to the property. Many times, this will be addressed simultaneously with the signing of the property settlement agreement. The deed will be prepared prior to signing, and each party will sign the deed transferring the interest in the property from both parties to only the refinancing spouse. One of the attorneys (usually the attorney for the relocating spouse) will hold the deed in escrow until the refinance is complete.

For additional information, please contact Thomas Clark at tclark@tuckerlaw.com or at (717) 221-7952.