The disposition of the homestead is determined in the divorce.  If one party is awarded the house, but the other party is still on the mortgage, then both parties could be liable for any deficiencies or missed payments on the property.

An Example

For example: Jack and Jill own a home during their marriage. Both of their names are on the title, and the mortgage.

Jack and Jill get divorced.  Jack is awarded the home in the divorce.  In this case, Jack will typically be responsible for making all of the payments on the home: PITI, utilities, improvements, etc.

Jack can remove Jill from the title on the home using a quit claim deed.  If Jack does not execute a Quit Claim Deed, then Jill can be removed from the title of the home using a Summary Real Estate Disposition Judgment.

So now Jack has ownership of the home through the divorce, is responsible for payments on the home from the divorce, and took Jill off the title using a quit claim deed.

Mortgage Issues

What about the mortgage?  While a divorce can award a party the home, the court does not have the power to take the other party off of the mortgage.  The decision to remove a party from a mortgage is up to the lending institution that holds the mortgage.

So the Court could order Jack to make every reasonable effort to refinance the home.  Jack would have to apply for a refinance. If Jack is unsuccessful, Jill is out of luck and is still on the mortgage. This means that if Jack defaults on payments, the lender can go after both Jack and Jill because they are both on the mortgage.

In this situation, Jill can pay the lender, and then go back and sue Jack (because Jack is supposed to make payments per the divorce decree).

The big reason why Jill will want to be removed from the mortgage is to:

  1. Limit her liability in case Jack defaults, and
  2. Most lenders will consider the mortgage on the home in Jill’s debt to income ration.  So if she wants to buy their own property, there is already a mortgage in their debt to income ration.