Refinance Your Home
Another option for homeowners who are considering how to get out of a mortgage without ruining credit scores is to refinance the property. It's important to note, however, that this option is only available to property owners who have a reliable, stable income and low housing expense ratio.
The mortgage servicer will probably file a notice of default with your local government and report the nonpayment to the credit bureaus, which will negatively impact your credit score. “The credit is the first thing that gets hit. Your credit will take a nosedive if you stop paying your mortgage,” Carlson says.
Separating might mean you're no longer romantically linked with your partner, but if there's a joint mortgage with both your names on it then you're still financially linked. Fail to keep up with repayments of a joint mortgage, and there could be serious knock-on effects for both of you.
An easy solution is for one of the parties to quitclaim their interest to the other. Often, the price for transfer consideration doesn't even have to be monetary. The party receiving the quitclaim can agree to refinance the property into their own name, getting the party leaving the home completely off the mortgage.
Removing someone from a mortgage typically requires a loan application, proof of income, bank statements, credit report, property title and deed, and a divorce decree or separation agreement if applicable. Your lender may also request additional documents depending on your specific situation.
Generally, the legal foreclosure process can't start until you are at least 120 days behind on your mortgage. After that, once your servicer begins the legal process, the amount of time you have until an actual foreclosure sale varies by state. If you are having trouble making your mortgage payments, act quickly.
A strategic default, also known as a voluntary default or simply walking away, occurs when a borrower opts to stop paying their mortgage. Typically, this happens when the property's market value falls way below the amount owed on the mortgage.
Dave Ramsey, the renowned financial guru, has long been a proponent of financial discipline and savvy money management. This can include paying off your mortgage early, but only under specific financial circumstances.
Three of the most common methods of walking away from a mortgage are a short sale, a voluntary foreclosure, and an involuntary foreclosure. A short sale occurs when the borrower sells a property for less than the amount due on the mortgage.
Home equity loans, home equity lines of credit (HELOCs), and cash-out refinancing are the main ways to unlock home equity. Tapping your equity allows you to access needed funds without having to sell your home or take out a higher-interest personal loan.
If the borrower, now a homeowner, defaults on their loan, the lender then has the legal right to foreclose on the property and have it sold to reduce the debt that is owed to the creditor.
Usually, foreclosure proceedings begin after 120 days (four consecutive missed mortgage payments) of delinquency on your mortgage, but this isn't always the case. The housing market in which you live, your municipality and your lender may all impact the foreclosure timeline.
If there is a hardship, your servicer will explore mortgage assistance options with you. Options might include a repayment plan, loan modification, short sale or Deed-In-Lieu of foreclosure. If a mortgage assistance solution cannot be reached, and the account remains delinquent, your home may be foreclosed on.
Forbearance plans
With a forbearance plan, you won't have to make monthly mortgage payments, or they'll be reduced, for a set period. At the end of that period, the entire past due balance will be due. Note that, until this lump sum is paid, the loan is considered past due, and your credit score may be affected.
When you separate from your partner and have a joint mortgage, you are both liable for the mortgage until it has been paid off in full. Bear in mind that this is regardless of whether you still live in the property or not. You will need to make sure you keep up with any repayments you are legally obliged to make.
No Court can order the mortgage lender to remove a party. Someone needs to refinance and remove them. The private loan terms are not subject to your divorce order.
No, a person is not "automatically" entitled to half the equity in real estate just because they purchased the property with another person. The amount of each owner's fair share of the equity may need to be determined by a judge if the two people can't agree on the amounts.
You can take your name off a mortgage without refinancing your loan by selling the home, having the new owner take on a loan assumption, asking your current lender to modify the loan, or filing bankruptcy. You can also pay off the entire mortgage if you and your co-owner have the means.
You can take legal action against them for breaching the agreement you both made or seek a court order to force the sale of the property. It's important to consult with a lawyer to understand your legal rights and options and to make the best decisions for your situation.
Selling a property with your name on the deed but not on the mortgage creates added levels of complexity and requires more collaboration with third parties. However, you can achieve a successful sale with careful planning and the right support.