Divorce proceedings can push already strained relationships over the edge. Ex-spouses sometimes hold secrets and don't realize their full impact until months or years after separation paperwork has been signed. Your ex's back taxes, unpaid child support, or defaulted consumer loans can all come back to haunt you in the form of a lien against your home equity.
A lien not only impacts your credit report, it can prevent most refinance lenders from restructuring your home or allowing you to cash out home equity. Depending on your situation, you can try to find ways to invalidate a tax lien, to partner with the entity that placed the lien on your property, or to simply pay it off and move on with your life.
Search for Liens Before You Refinance
A visit to your county clerk's office, a check online (many counties have that information on their sites), or a call to a title company can streamline the refinance process. Liens against your property could have been filed without your knowledge, with notifications sent to an ex-spouse's new address. Likewise, notifications about liens filed before your divorce could have been hidden or destroyed by an embarrassed or angry ex. Tracing your property ownership history through deeds and claims is the best way to ensure that court-mandated property transfers have been recorded correctly.
Refinance Easy: Divorce with a Quit Claim Deed
If a lien against your home was filed to cover your ex-spouse's debt after your divorce was finalized, the right paperwork can clear the record. In many cases, a spouse surrendering the right to his or her share of home equity must agree to sign a quit claim deed. This legal document resets the ownership of real estate into the name of the spouse remaining in a home. A lien placed against a former owner after a quit claim deed is filed at the clerk's office can be nullified by a judge.
Filing a quit claim is often part of the divorce process. However, some couples forego this step, leaving themselves vulnerable to property claims by third parties. If you still hold the property jointly, the lien holder must be paid before you can refinance or sell your home.
Refinance with a Subordination Request
If a lien cannot be nullified, you can still try to partner with a refinance lender and with the lien holder to pay off the old debt using home equity. By agreeing to pay off a lien, the lien holder can sign a subordination agreement that permits a refinance lender to process a new loan. The lien remains on the property while you use home equity to rebalance your finances.
About the Author:
Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.
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