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Only One Spouse on Mortgage but Both on Title in Divorce

Sometimes, only one spouse will apply for the mortgage, even if both spousesā€™ names are on the title. The outcomes in divorce may be different depending whether the spouses reside in an equitable distribution state such as New York or Florida or in a community property state such as Texas and California.

Effect of divorce on the mortgage and title

When a married couple divorces, the spouses either agree or the court makes a decision on a property settlement.

Equitable distribution state. In an equitable distribution state, such as New York or Florida, this means that in case the spouses do not agree on how to divide their property in divorce, the court may not necessarily divide it equally but equitably in a way that is fair, based on a set of factors such as how much and what each spouse contributed to the marriage and what each spouse will need to move forward with the divorce.

Community property state. In a community property state, such as California or Texas, all property acquired during marriage is presumed to be community property and divorce, community property is divided equally. So if the house was bought during marriage, it would be sold and the proceeds divided equally.

Sell the real property and satisfy the mortgage

The easiest and the most common way to handle real property in a divorce is to sell the property, use the proceeds of that property to pay off the mortgage debt, and split the remaining equity among the spouses. This allows the spouses to start anew with their lives.

Here are the other options that the parties may agree to or that the court may order:

Transfer property to one of the spouses

When both spousesā€™ names are on the title, the execution of a quitclaim deed by one spouse in favor of the other spouse in cases of divorce results to the transfer of ownership of the property from one spouse to the other spouse.

The spouse usually executes the quitclaim deed only when: (a) refinancing has been approved, the spouseā€™s name has been removed from the mortgage, and the spouseā€™s equity in the property has been paid, or (b) an amount equivalent to the spouseā€™s equity in the property being transferred in the quitclaim deed has been given to that spouse.

Refinance the mortgage without selling the real property

Another way to handle real property in a divorce when both spousesā€™ names are on the mortgage is to remove one spouseā€™s name on the mortgage with the lenderā€™s consent through refinancing. In this case, however, the spouse who refinances the mortgage must pass the lenderā€™s eligibility requirements. The lender will look into that spouseā€™s income, debts, assets, and credit score. Based on these factors, the lender may or may not agree to a refinancing of the mortgage, may require the spouse to come up with a larger down payment, or may ask the spouse to have another person co-sign the loan as a guarantor.

One spouse stays on the property, both names are still on the title

When refinancing is not an option, it sometimes happens that one spouse stays on the property (usually with the children), but both spousesā€™ names are still on the title. The spouses may share the responsibility of paying the mortgage, or just one spouse pays, or one spouse pays more than the other, depending on their agreement or court order.

How did it happen that one spouseā€™s name is on the mortgage but both spousesā€™ names are on the title

Sometimes, only one spouseā€™s name is on the mortgage but both spousesā€™ names are on the title. How or why did this happen?

There are many reasons why this can be the case:

One spouseā€™s credit score is higher than the other spouse’s

When one spouseā€™s credit score is higher than the other spouse’s, that spouse is more likely to be approved with the loan and will be entitled to lower interest rates. When both spouses apply for a mortgage and one has a lower credit score, the lender does not usually average the credit scores of the co-borrowers, but only gets the lowest credit score and bases the interest rates on that lower credit score. Having the spouse with the better credit score apply for a mortgage alone will save the married couple thousands of dollars due to the lower interest rate it was able to secure for the long-term loan.

On the other hand, having only one spouse apply for a mortgage loan will limit the married couple to a smaller amount of loan since the loan will only be based on that one spouseā€™s income and ability to pay. If both spouses apply for a loan, the lender will take into consideration the combined income.

Despite the disadvantages of having only one spouse apply for a mortgage, many couples utilize this route. Usually, after one spouse is approved of the mortgage and purchases the real property, the spouse executes a quitclaim deed in favor of the other spouse in order to have the other spouseā€™s name on the title.

In this scenario, only one spouse is primarily liable to pay for the mortgage, but both spouses own the property, subject to the mortgage. Since the quitclaim deed is executed after the mortgage is recorded on the title, the other spouseā€™s ownership interest is subordinated to the mortgage lien. In case the spouse fails to pay for the mortgage, the real property may be foreclosed, even without the consent of the other spouse (who is a joint owner).

The spouse purchased the real property before the marriage.

Another reason why one spouseā€™s name would be on the mortgage but both spouseā€™s names would be on the title is when a spouse purchased the property prior to the marriage. In that case, the spouse applied for a mortgage and purchased the property before the marriage. After marrying, the spouse may decide to execute a quitclaim deed transferring ownership interest to both the spouses since both spouses are sharing the responsibility for the mortgage payment.

Similar to the scenario above, only one spouse, in this case, is liable for the mortgage payment. In case the spouse defaults on the mortgage loan, the property may be foreclosed, even without the consent of the other spouse, who took ownership after the mortgage lien was recorded.

Title vs. mortgage

The title reflects ownership interest over real property. It is evidenced by a deed conveying ownership from one person to another. This title deed is recorded with the county recorder or city register in order to be effective against third persons. Once the title deed is recorded, the public is put on notice that you are the new owner of the real property.

Unless you buy the real property in cash, you will need a mortgage to purchase it. A mortgage is an agreement between a lender and a borrower, where the lender lends money with interest to the borrower to purchase real property. As security for the loan, the property being purchased is offered as collateral on the mortgage. If the borrower fails to pay, or defaults on, the loan, the mortgage can be foreclosed, allowing the lender to recover the unpaid debt by taking ownership of the mortgaged property and selling it.

This mortgage is also recorded as a lien on the property with the county recorder or city register. The record of the mortgage on the title puts the public into notice that anyone who buys the property purchases it, subject to the mortgage.

When only one spouseā€™s name is on the mortgage but both are on the title and there is a dispute regarding each spouseā€™s equity in the property, you need to be represented by a lawyer when negotiating with the other spouse in the event of divorce. If you need to rectify a mistake where both spouses are on the mortgage but only one spouse is on the title, consult with a lawyer to prepare a quitclaim deed which should be recorded in the county register. Should you need assistance, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York, NY, Brooklyn, NY and Queens, NY. You can call us at 718-509-9774 or send us an email at attorneyalbertgoodwin@gmail.com.