“The Love Can Go Away, But the (Promissory) Note Does Not”

Divorce Settlement Screw-Up’s:  Exhibit A

Test your knowledge of mortgage finance, and answer the following question (aired at a continuing ed class yesterday):

If a deed is given from an ex-husband to an ex-wife,** the ex-wife is automatically the sole owner of the real property and the sole obligor on the mortgage.

A. True
B. False.

Answer:  False.

Ex-Spouse:  “Please Send Me a Check for $100,000”

How can the above legal subtlety come back to, umm . . . haunt someone?

Consider this not-so-hypothetical example:  a husband and wife own a $1 million home, with a $950,000 mortgage against it.

They divorce.

As part of the divorce settlement, the husband quitclaims his interest in the home to his spouse.

The housing market subsequently falls (remember that?), reducing the home’s value to $750,000.

Voila!

The home is a now a short sale, which means that in order to sell the house, the spouse must plug the $200,000 hole.

Unless the wife refinanced the mortgage in her name only, the ex-husband is on the hook for 50% of the shortfall.

**The math (and legal liability) works exactly the same with the roles reversed, i.e., the wife quitclaiming her interest in the home to her ex-husband.  Ditto for same-sex couples . . .



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