Understanding the Garn-St. Germain Act & Joint Mortgages in Divorce
Navigating a divorce is challenging enough, but when real estate is involved, things can get even more complex. One common concern is what happens with a jointly held mortgage if one spouse wants to keep the home. The Garn-St. Germain Act can play a significant role here, but not everyone understands how it works. As a Certified Divorce Real Estate Expert (CDRE), my goal is to help you see what’s possible when it comes to joint mortgages, keeping it simple and meaningful for your unique situation.
What Is the Garn-St. Germain Act?
The Garn-St. Germain Depository Institutions Act of 1982 is a federal law that, among other things, prevents lenders from automatically calling in a loan if there’s a change in ownership under specific circumstances. Essentially, if one spouse keeps the house after a divorce and takes over full ownership, this act can prevent the bank from suddenly demanding payment in full (also known as “calling the loan due”).
How It Applies to Divorce and Joint Mortgages
In divorce cases, the Garn-St. Germain Act has a key provision for when a home is transferred to a spouse as part of a property settlement. So, if one spouse is awarded the house, the lender can’t demand full payment just because of this transfer. This protection can ease some of the financial pressure and allows time to refinance the mortgage or adjust the terms in a way that makes sense for the spouse who keeps the home.
Why Joint Mortgages Are Complicated in Divorce
When both spouses are on a mortgage, they’re jointly liable for that debt—even after divorce. If one person is awarded the house and the other isn’t removed from the mortgage, both remain legally responsible for the payments. This can lead to issues later on if the paying spouse falls behind, as it affects both parties’ credit scores. So, while the Garn-St. Germain Act helps protect from a sudden loan recall, it doesn’t relieve either spouse from the financial responsibility of the mortgage.
Options for Handling a Joint Mortgage
Once a spouse is awarded the home, the ideal next step is usually to refinance the mortgage under that spouse’s name. Refinancing allows the remaining spouse to take full responsibility and frees the other from future liability on the property.
Here are a few possible options for handling a joint mortgage:
- Refinance in One Spouse’s Name
If the spouse keeping the house has enough income and credit to qualify, refinancing may be the best option. This way, only one person is responsible for the payments moving forward, which can avoid future credit issues and allows a fresh start. - Sell the Home
Sometimes, neither spouse can or wants to keep the home, and selling is the most straightforward option. After selling, the proceeds can go towards paying off the mortgage, and any remaining equity can be divided per the divorce agreement. - Assumption of the Loan
In rare cases, lenders might agree to let one spouse “assume” the mortgage, essentially taking it over without refinancing. However, not all lenders allow this, and the terms can vary, so it’s worth discussing with a Certified Divorce Real Estate Expert and your lender if this is an option.
What If You’re Stuck with a Joint Mortgage?
If refinancing or selling isn’t possible right away, couples might need to work out a temporary arrangement. In some cases, the spouse staying in the home can agree to pay the mortgage until they’re able to refinance. However, this should be carefully documented, as it can create future conflicts if circumstances change. Both parties must understand that until the mortgage is refinanced, both are still financially tied to the property.
Making the Right Decision for You
Understanding the Garn-St. Germain Act and your options with a joint mortgage can give you a lot of clarity during the divorce process. Ideally, speaking with a Certified Divorce Real Estate Expert can help you and your attorney weigh your options and come up with a solution that protects your financial future.
