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?

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.)

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.

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.

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.