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My soon to be ex-husband and I bought a house together in 2017 - we are on a conventional 30-year ARM mortgage with a current rate of 3.37% until November 2027. We are now getting divorced, and I am to be awarded the house and become the only owner. I want to "assume the mortgage" under the current terms (it is much less expensive than a refi). I don't need to transfer money to my ex, but he does want to be off the mortgage so that he can eventually get a home loan of his own. The closing documents on the loan state that the loan "is assumable under certain conditions". It doesn't state what those conditions are, however. I am being told by US Bank that the loan cannot be assumed until after the first rate adjustment (Nov 2027) but they have refused to show me any document that states those conditions.

I have also read up on the Garn St. Germain law from 1982; that law seems to make it clear that in the case of a divorce, the bank cannot enforce a due-on-sale clause. It seems to me that by requiring me to refinance at today's super high rates, the bank is essentially requiring me to pay off the loan, right? Isn't that in violation of the federal law?

I had a brief consult with a real-estate lawyer, and they indicated that I was probably right but mostly blew me off and told me it would cost tens of thousands to go up against US Bank's lawyers. Is there a way to go about this without hiring lawyers?

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    Ask a few more lawyers; this site is not for specific legal advice. Jun 13, 2023 at 17:19

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Without addressing the specific facts of the question, here are some general principles.

While a transfer of real estate upon divorce does not trigger a due on sale clause (which would trigger a foreclosure), both spouses have to remain on the loan unless it is refinanced.

Assumption of a loan generally applies to new owners of the real estate, assuming that they are creditworthy, and not to someone who is one of the original owners of the real estate. Otherwise the bank would be giving up something (one of the guarantors of the loan), while getting nothing in return.

It is common for spouses who are both on a loan to have a difficult time extricating one of them from responsibility for it. Often rates or lack of income or creditworthiness makes it hard for the spouse getting the home to refinance. Of course, one could also sell the home, pay the debt with the proceeds, and use the proceeds to buy a new home.

Ideally, a plan to deal with this is included in a separation agreement in a divorce, but sometimes there are no good alternatives, or parties not represented by lawyers don't anticipate the problem and address it.

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  • Could the spouse wanting to exit the mortgage agreement file a quit claim deed? Jun 13, 2023 at 20:00
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    @MichaelHall A quit claim deed ends ownership of the property, it doesn't relieve someone signing it from liability on the mortgage. That requires the consent of the bank, or payment in full of the mortgage.
    – ohwilleke
    Jun 13, 2023 at 20:05
  • Good point, in fact ideally you'd want to the opposite; i.e. title without financial burden. Thanks. Jun 13, 2023 at 20:41

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