Over my career in lending, I have seen several customers that have gone
through a divorce and did not fully understand the ins and outs of what
happens to the existing home mortgage. Too many times, the divorce is
finalized and a spouse is awarded a property, and they think that it's
all over. Well, not exactly...
If your divorce decree awards the other spouse the home, but you were both
on the original mortgage note, then regardless of who was awarded the
house, BOTH of you are still responsible for the payment of the mortgage.
The divorce decree does not trump the credit report and who is responsible
for the payment.
Let's look at an example... A few years ago, ex-husband and ex-wife
bought a house together (while they were still married) and both were
on the mortgage note. Ex-wife was awarded the house in the divorce decree.
Per the divorce decree, ex-husband has no financial obligations to the
house anymore...or does he? If ex-wife decides not to pay the mortgage
anymore or becomes delinquent, then ex-husband's credit will be affected.
Just because she was awarded the house, he is still liable for the repayment
of the loan.
Another look...if ex-husband wants to purchase a new home, the previous
home that was in the divorce does come into play. If the payment history
on that home is spotless, he CAN provide proof that he does not make payments
and the ex-wife was awarded the home. If, however, the mortgage payment
history is delinquent, his credit score suffers and he may not get approved
for the new home loan.
The way to solve this potential issue is to sell the property or to refinance
the ex-husband off and put the new home loan into the ex-wife's name
only. This will completely sever any ties that the ex-husband had with
the previous house.