One issue that I see come up again and again in divorce cases is that of the marital home – who should get it, and how to relieve the other party of the mortgage (in NC they are called Deeds of Trust) that is associated with it.  North Carolina has some extremely bank-friendly foreclosure statutes, so it is vitally important to both spouses that the issue of how to refinance the mortgage get resolved quickly and preferably before the separation agreement is signed.

However, we live in the real world here, which means that people are eager to move out, move on and get the clock started on that one-year separation period that is required to get a divorce in North Carolina.  Most people don’t want to wait until every single issue is resolved prior to signing the separation agreement – and refinancing the mortgage to take off the name of one spouse is one issue that can take many months to resolve – even if everything else has been divided.

Accordingly, I recommend a few safeguards to protect an innocent spouse from the credit problems that can ensue if the other spouse does not promptly remove their name from the mortgage (such as not being able to obtain financing of a house on their own, or worse yet, the hit to their credit that comes if the other spouse stops paying the mortgage).  Anyway, here they are:

  1. Specify a date by which the refinance must take place, and put some form of enforcement mechanism into the separation agreement (i.e., the innocent spouse can take possession of the house, foreclose on the house, or force a sale that will pay off the joint debt)
  2. DO NOT, under any circumstances, sign over the house to your spouse until your name is off the mortgage.  You can always sign the quit claim deed on the day of closing for the new mortgage – don’t let the bank try and force you to sign one earlier.
  3. If at all possible, get the refinancing issues worked out before you sign the separation agreement.  Talk to your lender – they may have a special program for divorcing spouses.  Get the paperwork  you need ready and find a lender (even if not your current one), that will pre-approve your spouse for the refinance.  It would also be helpful to have that pre-approval letter in hand early in the process.

In today’s mortgage climate, refinancing the marital home is a big hurdle – however, if the appropriate safeguards are in place, then you should be protected.