I have a primary residence I obtained free and clear in a divorce settlement this year that was financed in joint name with ex. The home has...

Question

I have a primary residence I obtained free and clear in a divorce settlement this year that was financed in joint name with ex. The home has a 1st and 2nd mortgage that is 78% of the total appraised value of the property ( conservative ) I have been ordered to refi the property in my own name or else it will be sold. I have talked to the current mortgage holder and asked them to let me assume the exisiting mortgage with a quitclaim deed from my ex spouse. The original mortgagor ( 2003 ) sold this loan to a big bank a few years ago. The bank just got licensed a few months ago to do biz in Illinois. I asked the bank to help me and they said they could not because my DTI was too high ( due to credit card debt from the divorce bills - my score is now only 650 ) and they could not use the existing mortgage, they'd have to write a new loan. Is there any leverage or help I could get with an aggressive legal approach with representation to get the bank to reconsider in Illinois? I am sure i can continue to make the mortgage payments on both 1st and 2nd mortgages.

Answer

There is not anything you can do to force the bank to release your ex-spouse and allow you to assume the loan solely. Suggestions: (1) Consider whether there is anything you can do to handle some of the other debt. Are you expecting an income tax refund that may allow you to pay off certain bills in full, thereby reducing your required monthly debt payment? Would consolidation help (be careful not to make matters worse, however, with a high interest plan)? (2) Approach the lender again, either after you have taken steps toward Option 1 above, or simply try again, politely, to ask for the matter to be given further consideration. Perhaps another representative or supervisor would look at it differently. Perhaps you can offer additional funds to reduce the balance if you have anything available. (3) Have someone else join you as a co-signor. That person, however, should be advised by an attorney about the ramifications. (4) Refinance elsewhere. A well-recommended mortgage broker may be able to assist you. Sometimes, you will fare better with a small, area lender that keeps their loans in house. (5) Request an extension in your family law case that will allow you to pay down the loan a little and perhaps resolve some of the debt that is creating ratio issues. (6) Consider bankruptcy to eliminate other debt and reduce your ratios. This is a difficult analysis, however, as some lenders will look at it as a positive (you have reduced your debt load), but others will use it against you (your credit has been impacted by a bankruptcy filing). (7) Approach the department of the bank that handles loan modifications and see if they look at it any differently than the others you have been approaching (unless it is all one and the same). (8) Can you make any improvements to the property at modest cost to increase its value and make a refinance more likely?

Note, some of this may depend on how amicably you and your ex-spouse can handle things or how the family court judge would look at things. Are there children involved that the home will benefit now as far as you having a place and years from now as far as you maintaining and gaining the equity? Is your ex-spouse hoping to do something soon where having this on the credit report is limiting? Can you offer cash in a few years from the equity that is likely to be gained?