Getting the Lender to Agree to Remove a Name From a Joint Mortgage
Contact your lender. Removing a name from a joint mortgage is not a typical request, so it is best that you contact your lender in person or by telephone rather than by email.Since your lender holds the mortgage to the home, the lender wants to be able to hold both borrowers responsible if payments are not made. Therefore, a lender may be reluctant to remove one borrower's name from the loan. While this process, commonly referred to as an assumption or a novation, is not common, some lenders do allow it with respect to certain types of mortgage loans. For instance, FHA and VA loans commonly have provisions that allow assumptions.
Provide your lender with your personal financial information. This financial documentation must show that you have the ability to be responsible for the mortgage loan. For instance, you should provide your lender with your recent income tax returns, pay stubs, and bank statements. You have to prove to the bank that you have the money to make the mortgage payments every month on your own.
Use your credit report. Your credit report is a good source of proof of your ability to make the mortgage payments. Your lender always considers a person’s credit history in evaluating his or her eligibility for a loan. Credit history also can affect other factors about your mortgage loan, such as the interest rate. This information will help the bank decide if you are eligible for a mortgage loan on your own.
Provide your lender with your divorce decree, if applicable. People often want to remove the name of an ex-spouse from a joint mortgage loan, pursuant to their divorce decree. If this is the case, some lenders will require proof of a properly executed divorce decree in order to process the assumption.
Ensure that your mortgage loan qualifies for an assumption. While assumptions used to be more widespread, they are now are commonly limited to certain types of mortgage loans, including FHA loans, USDA loans, VA loans, and adjustable rate mortgage (ARM) loans that are still in their adjustable period. If your loan does not qualify for an assumption due to the nature of the loan, or there is no provision for assumption in the mortgage contract, you may not be eligible to remove a co-borrower's name from this process. If your mortgage contract does not permit an assumption, there is nothing that you can do to change it. You signed the contract and are bound by its terms.
Sign a mortgage novation or assumption with your lender. A novation or assumption simply substitutes one mortgage contract for another. The new contract removes the co-borrower from the mortgage loan altogether. You will sign the new mortgage contract. The co-borrower also normally must sign the appropriate documents in order to remove his or her name from the loan.
Sign a new deed. Once you have signed the new mortgage contract, there is another important step to take. You need to legally remove the co-borrower's name from the deed to the property.By executing a quitclaim deed, you and the co-borrower can transfer the property to you alone. You may wish to contact an attorney so that your deed contains all of the required information. Depending on your state’s laws, you may need to take the new deed to various government offices for recording.
Enlisting a Co-Signer to Add to the Mortgage
Recruit a co-signer for your mortgage loan. If you don’t qualify for a mortgage loan on your own, you could find another person who qualifies for the loan and who is willing to co-sign it. Taking this step might convince the lender to allow you to take on the mortgage loan without your current co-borrower. Your co-signer should have a strong credit history and sufficient income to qualify for the loan.
Contact your lender. If the lender agrees to it, this method will get the current co-borrower off the hook and allow you to take out another joint mortgage loan, except with a different person. It is important to remember, however, that circumstances may always change in the future. If you later want to remove the new co-signer from the joint mortgage loan, you will end up in the same situation that you are now. Likewise, if you fail to make the mortgage payments as agreed, your co-signer will be held responsible for the payments.
Sign new mortgage documents with your new co-signer. If your lender is agreeable, you can enter into a new mortgage contract along with your co-signer. This will absolve your current co- borrower from responsibility for the new mortgage loan, but will make your co-signer equally responsible for the loan.
Sign a new deed. You and your former co-borrower will need to sign a new deed that transfers interest in the property to you and your new co-signer. The deed may need to be recorded at various government offices, depending on the laws of your state.
Filing for Bankruptcy
Evaluate your financial situation. While this may be somewhat of an extreme option, filing for bankruptcy and receiving a bankruptcy discharge under Chapter 7 of the U.S. Bankruptcy Code can remove your name from a mortgage loan. This may be a helpful option, for instance, if you have a lot of debt and are struggling financially. If all other alternatives fail and you are otherwise eligible for bankruptcy, you should be able to discharge your liability for the mortgage loan that you hold jointly with another person.
Contact a bankruptcy attorney. An attorney who primarily handles bankruptcy cases will best be able to assess your financial situation. He or she can determine whether you are entitled to relief through the bankruptcy process. He or she also can advise you whether bankruptcy is likely to relieve you of the joint mortgage debt. This way, you can decide if bankruptcy is the best option for you.
File for bankruptcy if appropriate. A bankruptcy attorney can help you with the necessary paperwork and documents. You will need to include the joint mortgage loan in your bankruptcy filing. Assuming that your bankruptcy proceedings go smoothly, you may be able to discharge your financial responsibility for the mortgage loan. This will leave your co-borrower with sole liability for the loan.
Execute a quitclaim deed regarding the property. If you are able to discharge the mortgage loan in bankruptcy proceedings, you should sign a quitclaim deed to transfer your interest in the property to your co-borrower. This allows your co-borrower to sell, refinance, or otherwise dispose of the property as he or she sees fit.
Understand that your co-borrower will still own the property. Your bankruptcy discharge does not affect his or her legal or financial responsibility for the property. If you are worried about your co-borrower's ability to assume total responsibility for the property, you should discuss the potential consequences of this option before filing for bankruptcy.
Selling the Property
Contact a realtor about selling the property. If neither you nor your co-borrower are interested in living in or otherwise utilizing the property, you may consider selling the property. Selling the property would solve the problem altogether. If you wish to remain living on the property, however, then selling it is clearly not an option.
Determine the current value of the property. Your realtor can research the values of properties that are comparable to your property. These property values, as well as current market conditions, can give you a fairly good idea as to the value of the property. You also can pay to have an appraisal done on the property. However, appraisals can be expensive and are likely to give you roughly the same information as the realtor’s analysis.
Compare the estimated property value to your mortgage debt. If the estimated value of your property is equal to or more than the balance on your mortgage loan, you could sell it and pay off the mortgage loan. However, if you owe more than the property is worth, then you will not be able to pay off the mortgage loan. The only exception is if the mortgage lender agrees to a short sale, or a sale of the property for an amount that is less than what is owed on the mortgage loan.
Place the property for sale. If you receive an offer on the property that is fair and will pay the mortgage loan in full, your problem is solved. Both you and your co-borrower will execute a deed within the course of the sale that transfers all ownership of the property to the buyer. The mortgage loan will be paid off. If you receive an offer that is less than the amount of the mortgage loan, however, you will need to contact your lender to see if they will agree to a short sale.
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