Mortgage and divorce – what do you need to know?

Sometimes love ends faster than a joint loan agreement. So how do you get rid of a joint debt after divorce or the breakup of an informal relationship?

If you were married, your property marriage will cease due to divorce. Joint debts, however, are not split. Only assets of the joint marriage property, e.g. a purchased flat, are subject to division. So, if you took a loan to buy a property or build a house as a married couple, you are still obliged to pay it back after divorce. The same, of course, applies to couples in informal relationships.

This commitment is joint and several

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Which according to art. 366 of the Civil Code means that if the bank does not receive the loan installments on time, it may demand repayment from:

  • both borrowers
  • or any of you

Satisfying a bank by one of you releases you from the obligation to repay to the other bank. Which of you has paid off the bank’s liability is irrelevant. It is important that the commitment is repaid.

It is also worth remembering that although the loan is secured by a mortgage on the property, the debtors are responsible for paying it back with all their assets. This means that the bank may also collect debt from bank accounts, salary or other assets of each of you, and not immediately put the property up for auction.

So how to say goodbye to each other and the bank effectively?

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  • Sale of real estate

The simplest solution is to sell the property and then pay off the debt from the proceeds from the transaction and divide any surplus if you both. It is not always profitable, because it may turn out that the current value of the property does not cover the debt or the bank may charge additional costs, e.g. for early repayment.

  • Rental of real estate

If it turns out that the sale of real estate is not possible for various reasons, you can consider renting a house or a flat. However, the money obtained from the lease should be used to pay the loan installments until the sale becomes more profitable. However, this requires concerted cooperation, which is not always possible.

Rewriting the loan for “ex” “Debt assumption”

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Assumption of debt involves the conclusion of an appropriate agreement between the bank and one of the borrowers with the consent of the other borrower, according to which all the debt will pass to the person taking over. Of course, this will only succeed if the bank determines that this person has sufficient creditworthiness to secure the repayment of other liabilities.

  • Refinancing a loan with another bank

It is the bank’s good will to agree to exclude one of you from the loan. If, despite attempts, the parting couple does not obtain the consent of the current bank for the exclusionary annex, then the only way is to refinance the existing loan with another bank while excluding the ex-spouse / partner from the group of applicants. This solution seems more difficult at first glance, but it can even contribute to obtaining better loan pricing conditions. Often, the earlier loan agreement will be less attractive than currently offered. Thanks to this, we can not only part on every level of the old life together, but also get a lower installment.

  • Entering a new life partner or family member into the loan agreement in place of the former borrower

If the bank refuses to take over the liability by one of you because it thinks that it is less secure for him then you can suggest entering a new life partner or family member in the contract in place of the former spouse / partner. The bank will then examine how this may affect the overall assessment of creditworthiness.

As you can see, there are several ways out of an awkward situation. A trusted expert will definitely suggest the best solution for both sides. The last way to “freedom” can be difficult, but ultimately finding the only half for life is even more difficult.