Help! I am Still on the Mortgage

Being Removed From Mortgage

Our law firm commonly gets requests from people complaining that they are still listed on the mortgage and therefore still financially liable for the mortgage payments even after they no longer have any practical connection to the property. These situations usually arise in the context of a previous marriage or previous relationship where people purchased a property together prior to divorce or separation. In a divorce, one spouse will usually be awarded the house in the divorce decree or in a separation between unmarried persons, one person will remain in the house paying the mortgage and taxes.

Often the spouse who was not awarded the house or the person in the relationship who abandoned the property will find out that remaining on the mortgage has several negative consequences.  For example, obtaining new credit to buy another house may be difficult if a person is still liable on a mortgage.  Also, the spouse awarded the house or the person in the previous relationship that stayed with the house may make late payments on the mortgage or stop making payments altogether.  Late payments or an eventual foreclosure can be very damaging to a person's credit.

When people become aware of the negatives associated with remaining on a mortgage, people want to know what practical solutions, if any, can be undertaken.  First, deeding the property out of a person's name will not change that person's liability on the mortgage or promissory note.  In Texas, owning a property on a deed and being liable on debt are two different things.  Second, the mortgage  company will most likely not remove a person's financial liability on the note just because they got divorced or separated from a previous relationship.  There is no law that requires a mortgage company to release someone for a note if a person gets divorced or ends a relationship.

What then may be some practical solutions when a previous spouse or significant other refuses to sell the property, refinance, or pay off the note?  Our law firm is currently aware of three possibilities that may assist a person wanting to remove or lessen liability associated with a note.

1) A person can force a sale of the property via a partition lawsuit and effectively cause the note to be paid off at the time of the sale.  In Texas, the right to partition is an absolute right of a co-tenant, and a court may force a sale of a property.  This is a relatively costly option because of the legal fees involved in a partition lawsuit.  Also note that a partition lawsuit cannot be used when a divorce decree has already awarded the property to one of the spouses, so this option is only available to co-tenants still in ownership of the property.

2) It may be possible to enter into a private contract with the previous spouse or significant other to govern the continued joint ownership or relationship.  These agreements may include financial penalties or other damages for late payments.  The agreements may specify some date by which a party must refinance the loan or be forced to sell the property at some date to pay off the loan.  It is important to be careful in these agreements that a co-tenant does not unintentionally waive any rights of partition.  Also, any provisions forcing a sale of a property may be  ineffective in the event the property is homestead.

3)  In Texas, there is something rarely used or heard of called owelty of partition.  An owelty lien, deed and note can be used between divorcing spouses or co-tenants to grant the spouse or co-tenant deeding the property a lien on the property.  In theory, should the owelty note not be paid, then the the property could be foreclosed.

It is very important to consult a competent real estate attorney when considering any of the above three options.

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