I am going through a divorce. My ex-wife would like to buy my equity out and keep the house. If I sign over the house deed am I free and cle...

Question

I am going through a divorce. My ex-wife would like to buy my equity out and keep the house. If I sign over the house deed am I free and clear on the house and cannot be held responsible for any monies that could come due in the future (ie. she doesn't make a payment, taxes, etc.) Will my divorce judgement stand? I do not want to jeopordize my credit and would like to buy a home myself in the future.

Answer

This is a question that's perhaps better posed to a divorce or family-law attorney who deal with this kind of problem regularly, but I'll take a stab at it.

Most home loans contain so-called "due-on-sale" clauses that essentially terminate the loan and give the lender the right to collect what's due it when the house sells......but they aren't limited to ordinary cash-out sales; they also are triggered by any change in ownership, such as sale or gift or barter of a half interest to the other co-owner. Some lenders will give relief from such clauses (often for a fee), and most will in the case of a property split following a divorce decree.

Also, in a dissolution of marriage, the law provides that the couple's community assets AND community liabilities shall be divided equally. Once a dissolution of marriage (divorce) petition is filed, each party must submit to the other a preliminary disclosure of assets and liabilities, so there is supposedly transparency.

I think it is probably wiser to handle the entire division of property through the marital settlement agreement, where it will become part of a court order. Then neither party nor any lender can later attack it as not complying with the law....or at least later-on problems of this sort will be much less likely.

Answer

Unless the loan is refinanced by your ex-wife alone, you (and your credit) will remain liable on the loan until it is paid in full.

Answer

I don't know why Mr. Whipple told you about due on sale clauses. Under both Federal and California law, a lender is not permitted to exercise a due on sale clause when the transfer is an interspousal transfer as a the result of a divorce. (Civ. Code, sect. 2924.6, subd. (a)(3); 12 U.S.C., sect. 1701j-3, subd. (d)(7).)

Your wife would become liable for any property taxes, but liability for loan payments is another issue. In practice, you would still be liable on the promissory note unless your wife could get the lender to agree to allow her to assume the note (rare) or could refinance with a new lender. If the bank foreclosed upon her default, in some situations you could be liable personally for any junior loans (if any) and it will often show up on your credit.