June 29, 2016
A reader asks, “I have a FHA loan that I received with my ex wife we have been divorced for approx. 7 years. Due to the amicable nature of the divorce we did not specify that I would keep possession of the house, we have a gift of deed.”
“But the mortgage company says I can not refinance because there is no clause in the divorce decree about house ownership transfer. Wouldn’t the deed of gift be a legal binding document to prove ownership?”
FHA loan rules found on page 126 states, “A refinance transaction is a new Mortgage for a Borrower with legal title on the same Property with the proceeds used to pay off any existing liens”.
We don’t give out legal advice or opinions here as it’s beyond the scope of this blog to do so. We aren’t lawyers or legal experts, so the best we can do is quote the relevant portions of the FHA home loan rules in HUD 4000.1 or related documents. The reader would need to consult with someone who has legal expertise in this area.
The reasons for this are varied; state law affects such transactions and laws are different from state to state. What is permitted in one state may be illegal in another.
Also, state community property laws may also apply. Community property laws affect the final disposition of a borrower’s shared financial responsibilities for debt and property accumulated in a legal marriage. While not all states have community property laws, those that do have have more complex requirements in divorce cases.
And as we often point out, even of the FHA loan rulebook did have more to say about the issue, lender standards may also apply. It may be that a given lender won’t accept the type of paperwork mentioned in the reader question.
To approve a refinance loan, the lender may require a specific type of legal procedure or document in such cases which proves the borrower is entitled to apply for a refinance loan on the property.
Since FHA loan rules do specify that the borrower must have legal title, the borrower would need to check with the local authority to see what is involved for getting the applicant’s name on the legal title.
It may also be a good idea to have a conversation with a lender to see what that lender specifically requires in order to make the refinance loan possible under such conditions.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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