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Five Facts You Need to Know About Your House in a North Carolina Divorce

#1 The names on the deed and the names on the mortgage debt can be two different things.

People don’t always realize their ownership rights to property might be different from their mortgage obligation. As most people know, a deed conveys ownership of the property to the purchasers. However, the mortgage is a promissory note which can be signed by one or both property owners. Even when there are two property owners, as reflected on the deed, the bank or mortgage lender might make the loan in the name of only one property owner instead of both. This can happen when the other owner is self-employed and has irregular or sporadic income. Sometimes, the other owner has bad credit or a high debt to income ratio (too many debts for his or her income). When the mortgage note is only signed by one owner, only he or she is legally responsible for the actual payment of it, although both spouses might own the property together. In North Carolina, the mortgage note is secured by a document called a deed of trust, which is recorded at the Register of Deeds. It is the actual lien against the property. Sometimes the spouse who isn’t responsible for payment of the mortgage signs the deed of trust, allowing the lien to be placed against the land in which he or she has ownership interests. Just because the other owner signed the deed of trust doesn’t automatically mean he or she is also responsible for payment of the loan. In other words, we can’t usually tell whether the other owner is responsible for payment of the mortgage unless we see the mortgage note.

#2 In the vast majority of cases, the only way to “remove” your name from the mortgage debt in joint names is to pay it off.

When spouses separate and the mortgage obligation is in joint names, the person moving out of the house still has the mortgage debt on his or her credit record as an on-going debt even though he or she no longer lives there. If mortgage payments are delinquent, it is a problem for both spouses, not just the one who remained in the residence. Lenders won’t usually remove someone’s name from the mortgage note. The routine way divorcing spouses have one named “removed” from the mortgage debt is to pay off the debt. The two main ways to pay off a mortgage include selling the house and using the sales proceeds to pay off the debt, or refinancing the debt. Usually, a refinance in the context of a divorce means the old mortgage in both names is paid off when the spouse who keeps the house gets a new mortgage or home equity loan in only his or her name.

#3 One spouse “assuming” the joint mortgage means very little protection for the other spouse.

When one spouse agrees to legally “assume” payment of a mortgage that is in joint names of the parties, it means one spouse agrees to accept responsibility for the mortgage payment. It is an agreement that can only be made between the spouses. Because a joint mortgage includes a mortgage note signed by both spouses, both remain legally obligated to pay the debt. The mortgage note is an agreement made by the bank as the lender and the spouses as the borrowers. Spouses can’t just change the terms of the mortgage note they signed unless the original mortgage is paid off. There isn’t really a primary and secondary mortgage obligation in the sense many divorcing spouses believe. In our state, we have joint and several liability which means a lender has the option to seek 100% of the payment from one spouse alone if possible, or any percentage of payment from each spouse.

#4 The moment there’s a divorce decree, joint ownership rights change.

In North Carolina, married people commonly purchase their home in joint names. It is ownership known as tenancy by the entirety (TBTE). Instead of each spouse owning 50% of the home, each owns 100% of the home. Upon the death of a spouse, the widow or widower automatically owns 100% of the property. But when a judge enters a divorce decree, the owners are no longer married and their TBTE ownership magically becomes joint ownership as tenants in common. In that event, each owner owns a fractional share such as 50/50 and if one divorced owner dies, his or her ownership share is inherited by the person named in his or her will or next of kin. It is possible for the surviving divorced owner to share ownership with the deceased owner’s next of kin. 

#5 If your home is foreclosed uon, you might still be on the hook for a money judgment.

In these economic times, foreclosures are common. A foreclosure means the lender enforces their deed of trust, the lien on the property. Instead of receiving mortgage payments for a house the parties own, the lender becomes the legal owner of the property. Sometimes this is the end of the story. Other times, the lender might sell the property but get less money for it than what was owed. For example, if the outstanding mortgage debt was $235,000.00 but the lender sold the house for $150,000.00 there is a shortfall or deficiency of $85,000.00. A lender has the option to sue the person who failed to pay the mortgage to recover the loss of $85,000.00. If the lender is successful, a judge awards a judgment called a “deficiency judgment” making you liable for payment of that amount plus interest.

Amy A. Edwards is a family law attorney in Greenville, NC, certified by the NC State Bar Board of Legal Specialization as a Family Law Specialist, and is licensed only in NC www.AmyEdwardsFamilyLaw.com © 2017.

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