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Often Misunderstood in Divorce: Grasping the Distinction between Title and Mortgage
When it comes to homeownership, understanding the distinction between the title and the mortgage is crucial. The title and the mortgage represent separate aspects of property ownership, each with its own implications.
Note and Signers: The loan you took out to purchase your home involves a legal document called a note. One or both spouses may be signers on this note. The signer(s) are obligated to repay the loan. If one spouse has better credit and income, they may be the sole signer. If both incomes are needed for qualification, both spouses sign.
Mortgage or Trust Deed: The mortgage or trust deed is a distinct document that uses the house as collateral in case of default. While it's commonly referred to as the mortgage, it's a separate entity. Signing over the title does not impact who is on the mortgage.
Responsibility: Even if ownership is transferred through court orders or other means, the loan remains in force. The court lacks authority to alter the loan, making it a private contract. If your name is on the loan, you're responsible until it's paid off.
Removing from Title vs. Loan: Removing someone from the title does not release them from the loan. Being a signer on an existing mortgage might hinder future loan approvals. Refinancing is one way to address this issue, but spousal support or alimony arrangements can also be explored.
Risk of Foreclosure: Failing to handle the mortgage properly can lead to severe consequences. If one spouse refuses to make payments, it could result in foreclosure, impacting both parties' credit reports and hindering future financial activities.
Deficiency in Foreclosure: In foreclosure, the unpaid balance is considered a deficiency. Depending on foreclosure laws, both parties may be held responsible for this unpaid amount, causing long-term financial repercussions.
Best Approach: To remove your name from a loan, it must be paid off. This can be achieved through refinancing or selling the property. It's crucial to explore these options to avoid potential financial pitfalls and secure a stable future.
The complexities of title and mortgage underscore the importance of informed decision-making in real estate, especially in divorce situations. Navigating these intricacies demands a strategic approach, whether through refinancing or selling the property. Remember, merely transferring the title does not absolve you of mortgage obligations. It's essential to proactively address these matters to safeguard your financial future. For further discussion please contact me anytime.
Disclaimer: I am not a lawyer and this is not legal advice. Please consult with an attorney for personalized guidance on your specific situation.
AMANDA ALLEN, REALTOR
GRI-SFC-MRP
(903) 603-0648
