Q&A #1: Will a Deed of Trust to Secure Assumption Remove Liability?

This begins a short series (a dozen or so) of questions I have received recently from family law attorneys. I figure the best way to answer questions that you have is to….well, answer actual questions you have asked. Here’s an actual but common one:

Q: I am in an interesting debate with opposing counsel and I figured you were the better person to ask.  I am of the position that the best and only real way to get a house out of an ex-spouse’s name is to refinance.  They claim that the house can not be refinanced.  (yes, I did provide them your information and said that if anyone could do it, you could).  Opposing counsel feels that a deed of assumption is enough to get the house out of the ex-spouse’s name and off her credit.  Please enlighten me.

You are correct. The only absolutely, sure way of removing a mortgage liability from an mortgagor is for that debt to be paid off (by, for example, another party refinancing the debt balance – that is, REFINANCE).

There are banks which grant a “Release of Liability.” This, in my opinion, is suspect. The lender gives a letter that states some sort of “release” from the liability. I have not seen one; and, it is an unregulated activity so each bank makes their own rules regarding them. But, the significant thing is that the lender retains the existing original promissory note. The bank/lender does not return that note to the borrower(s) so that they can “burn the mortgage” so to speak. 

Moreover, the suggestion from opposing – that “a deed of assumption is enough to get the house out of the ex-spouse’s name and off her credit” – is completely false. First of all, no deed relieves debt. Only a “release of lien,” such as is filed when a loan is paid in full – does that.

Secondly, if they are referring to a Deed of Trust to Secure Assumption, not only does it NOT relieve debt, it verifies and enforces a “contingent liability.” That is to say that, even though a decree (order) may assign a mortgage debt to one of the other party in a divorce, the Deed of Trust to Secure Assumption effectively establishes that the debt assigned to the other spouse might effectively REVERT to the grantee of the Deed of Trust to Secure Assumption. You know the drill: if the grantee (of the property award) defaults on the mortgage loan, the grantor has foreclosure rights and can exercise them provided they have the willingness and wherewithal to catch up back payments/fees and continue making payments into the future.

 

IMPORTANT. The only way to make sure that a party’s financing (as part of a divorce settlement or a needed financing resulting from a divorce – refinancing or purchasing) is handled correctly is to make sure that I do it. It’s simple. You just tell the client (or opposing) to call Noel Cookman at 972-724-2881 or email me at noel@themortgageinstitute.com.  

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