How to Remove Someone from a Mortgage Without Refinancing

Homeownership can be a rewarding yet complex journey, especially when life circumstances change. Whether due to divorce, separation, or a change in financial agreements, removing someone from a mortgage without refinancing is a common concern. Refinancing is often the most direct solution, but what if it’s not an option? Thankfully, alternative methods exist, though they require careful planning and lender cooperation.

Understanding Mortgage Liability

A mortgage is a legally binding agreement between a lender and multiple borrowers. When two or more individuals sign a mortgage, they become equally responsible for repaying the loan. Removing someone from the mortgage does not simply mean removing their name from the paperwork—it requires legally transferring the obligation to the remaining borrower(s).

Why Avoid Refinancing a Mortgage?

Refinancing allows one borrower to take full responsibility for the mortgage, but it has drawbacks:

• Higher Interest Rates: If market rates have risen since the original mortgage, refinancing may result in higher monthly payments.
• Credit & Income Requirements: The remaining borrower must qualify for the new loan independently, which can be difficult without a co-borrower.
• Closing Costs: Refinancing involves additional fees, including closing costs, which may not be financially viable.

Given these challenges, homeowners may seek alternative ways to remove a co-borrower from the mortgage.

Alternative Methods to Remove Someone from a Mortgage

1. Loan Assumption

Loan assumption allows one borrower to take over the existing mortgage without refinancing. Essentially, the lender transfers the responsibility from both borrowers to a single borrower while keeping the original terms intact.

How Loan Assumption Works:

1. Check Loan Eligibility: Not all mortgages are assumable. FHA, VA, and USDA loans are more likely to allow assumptions, while conventional loans may not.
2. Obtain Lender Approval: The lender will evaluate the remaining borrower’s creditworthiness and income to ensure they can handle the loan alone.
3. Complete Assumption Agreement: If approved, the lender will require paperwork formalizing the transfer of responsibility.
4. Update the Title: The co-borrower being removed must also sign a quitclaim deed (explained below) to relinquish ownership rights.

Key Consideration: Loan assumptions may come with fees, and the lender may still require the remaining borrower to qualify based on credit and income.

2. Quitclaim Deed

A quitclaim deed is a legal document used to transfer ownership interest in a property from one party to another. While it does not remove the financial responsibility of the mortgage, it ensures that the departing co-borrower has no claim to the property.

Steps to Use a Quitclaim Deed:

1. Draft the Deed: A real estate attorney or title company can help prepare the document.
2. Sign & Notarize: The co-borrower relinquishing their claim must sign the deed in the presence of a notary.
3. File with the County Recorder: The deed must be recorded in public records to finalize the transfer.

Important Note: A quitclaim deed only transfers ownership, not mortgage liability. The departing party may still be held financially responsible unless the lender agrees to remove them from the loan.

3. Request a Release of Liability from the Lender

Some lenders offer a release of liability, allowing one borrower to be removed from the mortgage while keeping the existing loan terms. This option is less common and often difficult to obtain, but it is worth inquiring about.

How to Request a Release of Liability:

1. Contact the Lender: Explain the situation and ask whether a release of liability is available.
2. Submit Financial Documents: The lender will assess whether the remaining borrower can afford the loan alone.
3. Obtain Written Confirmation: If approved, ensure the lender provides documentation stating the removed borrower is no longer responsible.

Key Consideration: Even if granted, a release of liability does not automatically remove the borrower’s credit history from past payments.

4. Sell the Property

If loan assumption and release of liability are not viable, selling the home may be the most practical solution. Selling the property allows both parties to pay off the existing mortgage and move forward financially independent of each other.

Steps to Sell the Property:

1. Agree to Sell: All co-borrowers must consent to selling the home.
2. Hire a Real Estate Agent: A professional can assist in listing and negotiating the sale.
3. Pay Off the Mortgage: Proceeds from the sale go toward paying off the existing mortgage.
4. Divide Remaining Equity: Any profit from the sale is split according to prior agreements or legal arrangements.

Consideration: If the home’s value has decreased, selling may not cover the entire mortgage balance, requiring additional financial negotiation.

5. Seek Legal Mediation in Case of Disputes

If co-borrowers cannot agree on removing a party from the mortgage, legal mediation may be necessary. Family law attorneys or financial mediators can help negotiate terms and provide legally binding solutions.

Potential Risks of Not Removing Someone Properly Off Title

Failing to remove a borrower from the mortgage properly can have long-term consequences:

• Credit Impact: The departing borrower’s credit remains tied to the loan. Missed payments can damage their credit score.
• Financial Liability: If the remaining borrower defaults, the lender can still hold the departed borrower responsible.
• Ownership Conflicts: The remaining borrower may face legal disputes if ownership documents are unclear.

While refinancing is the most common way to remove someone from a mortgage, it is not the only option. Loan assumption, a quitclaim deed, a lender’s release of liability, selling the property, or legal mediation can all provide alternative solutions. Each method has pros and cons, and homeowners must carefully consider financial implications before proceeding.

In the ever-evolving landscape of homeownership, flexibility and informed decision-making are key. After all, isn’t homeownership meant to provide stability rather than uncertainty? By navigating these options wisely, borrowers can achieve a clean financial break and move forward with confidence.

References

Consumer Financial Protection Bureau. (2023). Understanding mortgage obligations. Retrieved from https://www.consumerfinance.gov/

Federal Housing Administration. (2023). FHA loan assumptions and guidelines. Retrieved from https://www.hud.gov/

U.S. Department of Veterans Affairs. (2023). VA loan assumptions and requirements. Retrieved from https://www.va.gov/housing-assistance/home-loans/loan-types/refinance/

National Association of Realtors. (2023). Legal considerations for property ownership changes. Retrieved from https://www.nar.realtor/