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#418201 - 09/02/05 04:01 PM Proper Documentation to Remove Individual From Loa
Anonymous
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Could someone please give me some advice on the proper documentation that is needed (if any) to remove someone from a loan account? This issue has come up a lot recently and our lenders do not seem to agree with our compliance personnel. For example, you have a couple who has divorced and the wife assumes liabilty for their home loan and the husband will be removed. In the past, we have required copies of the divorce papers to show that the husband has no ownership interest in the house and will no longer be liable for the debt. Our loan officers seem to think that this is not necessary and may add and remove people from accounts at their discretion. Is this true?

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Lending Compliance
#418202 - 09/02/05 04:12 PM Re: Proper Documentation to Remove Individual From Loa
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,017
Bloomington, IN
Quote:

Our loan officers seem to think that this is not necessary and may add and remove people from accounts at their discretion. Is this true?




Not IMO.

We either refinance the loan or do a modification, however we do request a copy of the divorce decree or death certificate as the case may be.

In the case of divorce the spouse keeping the loan must meet all our underwriting criteria before we will release the other spouse, and in 99% of these cases we will require a refinancing rather than a modification. As discussed before, the bank is under no obligation to release either spouse because of the divorce decree.
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#418203 - 09/02/05 04:16 PM Re: Proper Documentation to Remove Individual From Loa
Raymond Offline
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Raymond
Joined: Jul 2004
Posts: 517
The Land of OZ
Quote:

the bank is under no obligation to release either spouse because of the divorce decree.




Amen!

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#418204 - 09/02/05 04:42 PM Re: Proper Documentation to Remove Individual From Loa
Rocky P Online
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Joined: Jun 2003
Posts: 7,460
Florida
While the judge may say it's one spouse's responsibility to repay the loan, the loan is a contract between the lender and borrowers that IMHO cannot be broken by the judge. (The judge can impose conditions between the feuding parties, but the bank is not a party to the divorse, and signed contracts [notes] are ususlly beyond their scope of authority.)

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#418205 - 09/02/05 05:44 PM Re: Proper Documentation to Remove Individual From Loa
Truffle Royale Offline

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Joined: Jul 2003
Posts: 17,359
Sir SC is right regarding the bank not being a party to a divorce. Attorneys know this and although they may put pressure on about removing their client because the decree says so, they'll back right down when you stand your ground. Don't be cowtowed!

Try telling your loan officers that a mortgage is a legally binding recorded contract that can only be changed by another legally binding recording. It's not the same as a savings account.

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#418206 - 09/02/05 06:34 PM Re: Proper Documentation to Remove Individual From Loa
HRH Okie Banker Offline
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Joined: Jan 2003
Posts: 3,070
Oklahoma
In instances other than divorce, you'd probably want to get something in writing, approving the release of an obligor, co-signer or guarantor. Say that you want to release a guarantor on a loan. You should get approval from all remaining parties to said release.
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#418207 - 09/02/05 07:39 PM Re: Proper Documentation to Remove Individual From Loa
Rob K Offline
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Rob K
Joined: May 2003
Posts: 165
Tennessee
When this type of situation infrequently arises, we execute a release of liability, which the remaining obligor(s) sign in addition to a modification agreement. Contained in the release of liability is a clause specifically acknowledging that the remaining obligor(s) assumes full responsibility for the indebtedness.
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