Divorce and a House Neither of You Can Refinance: Your Options in Connecticut

If you're getting divorced and the house is still in both names, you already know the problem. Neither of you can carry it alone, or neither of you can get the lender to let one person take it over. Meanwhile the mortgage payment comes due every month.

I buy houses for cash, and I'm also a licensed broker, so I see this one regularly. I'm going to explain how it works and lay out your options, including the ones where I make no money. One thing first: I'm not an attorney, and nothing here is legal or tax advice. Your divorce attorney decides what goes in your decree. I can tell you how the house side of it tends to work.

Why the house gets stuck

Start with the lender's point of view. When you both signed the mortgage, you both became responsible for the full balance, and the lender approved the loan based on two people's income and credit. If one of you wants to keep the house, the lender has to be comfortable with one person carrying the whole payment. Removing a borrower makes the lender's risk go up, not down, so nobody on their side is in a hurry to help.

So what does this mean? A decree can say who gets the house, but a decree doesn't bind your lender. A court order can give the house to one of you and still leave both names on the loan.

What federal law does and doesn't do

There is one piece of good news. A federal law, 12 U.S.C. § 1701j-3(d), lists situations where a lender generally can't enforce a due-on-sale clause on a home loan. A due-on-sale clause lets the lender demand the whole balance if the property is transferred. Two of the exceptions cover a transfer where the borrower's spouse becomes an owner, and a transfer resulting from a divorce decree. The exceptions apply to residential property with fewer than five dwelling units.

Here's the part people miss. That law protects the transfer from being called due. It does not take the other spouse off the loan, and it doesn't make the lender approve a new borrower. If you're the spouse moving out and your name stays on the loan, you can still be on the hook for the payment, and it can still show up on your credit.

What should you do about that? Ask the servicer, the company you send your payment to, exactly what they'll do: whether they allow an assumption, whether they'll release one borrower, or whether a refinance is the only route. Then take the answer to your attorney before the decree is written.

The Connecticut clock

Connecticut has a waiting period. Under Conn. Gen. Stat. § 46b-67, a divorce can't be finalized until 90 days after the day the complaint is made returnable, which is the court's start date for the case. The court can waive that period if both spouses attest under oath that they have an agreement on all terms.

There's a second rule that matters more for the house. Connecticut's automatic orders, Practice Book § 25-5, apply once a divorce case starts. They say neither spouse may sell, transfer, exchange or dispose of property, or encumber it, without the other's written consent or a court order. The orders remain in place while the case is pending unless the court changes them.

In plain terms, nobody sells this house alone. If it sells while the divorce is open, it takes both signatures or a judge, and your attorneys should know before either of you signs anything. That includes signing a contract with me.

Your options for the house

Once you both agree on a direction, there are three.

One of you keeps it. This works when that person can refinance on one income, or when the lender agrees to release the other borrower. If the answer from the servicer is no, you'll need a different door.

You list it with a broker. Listing usually nets more than any cash offer, if the house is in shape and you have the time. You carry it until it sells, you pay a commission that's negotiable and quoted per property, and you split what's left as your decree says.

You sell for cash, as-is. No repairs, no showings, no financing contingency, and the two of you pick the closing date. It also gives you one number that both of you and both attorneys can plan around.

Why a cash offer is below retail

A cash offer is below what the open market might bring, and I'll tell you exactly why. When I buy, I take on the repair bill, the cost of carrying the house while the work gets done, and the risk that it sells for less than I hoped. The price I pay is how I'm paid for carrying that. The fees you don't pay are real money. They don't close the gap. For the arithmetic, see how a cash offer is calculated, and for the side-by-side, cash offer versus listing.

If you sell to Turning Point, Connecticut law gives you three business days after signing to cancel for any reason, and the closing date can't be more than 90 days out unless everyone signs a written extension. That matters in a divorce, where the calendar moves.

Who I represent, and who I don't

I'm a licensed broker, but when I'm buying I'm the buyer. I don't represent either of you, I'll tell you that in writing before you sign anything, and I owe neither spouse the duties an agent would.

I'm also Broker/Owner of Rydon Realty LLC, in the same building in Enfield. If you hired Rydon to list the house, I'd owe you fiduciary duties: loyalty, confidentiality and the best price and terms reasonably available. Same person, opposite sides of the table. You can list with any brokerage in Connecticut, and in a divorce I'd pick one that has nothing to do with me.

Questions to ask before you do anything

What will the servicer actually allow? Ask them in writing whether they permit an assumption, a release of one borrower, or only a refinance.

Get the answer before the decree is drafted, so your attorney can write around the real constraint.

What does the house owe, and what's it worth? Pull the payoff from the servicer and get a market analysis from a brokerage.

If the payoff is more than the house will bring, tell me. There's a path for that, and I'll point you to it.

How will the proceeds be divided? That's your attorneys' job, not mine or the buyer's.

Make sure the closing is set up to follow what the court or your agreement says.

Who's carrying the payment until it closes? Settle it in writing so neither of you is surprised.

Late payments hurt both credit records, because both names are on the loan.

Where we stand

Turning Point Properties LLC is a registered Connecticut real estate wholesaler, registration REW.0000006, the sixth wholesaler registration the state issued. I didn't wait to be asked.

Frequently asked questions

Can I sell my house during a divorce in Connecticut? Yes, but not alone. Once the divorce case starts, the automatic orders bar either spouse from selling or transferring property without the other's written consent or a court order. Talk to your attorney first.

Can my spouse keep the house if we're both on the mortgage? Your decree can award the house to one spouse, and federal law generally stops the lender from calling the loan due because of that transfer. Both names can still stay on the loan unless the lender releases one. Ask the servicer.

How long does a divorce take in Connecticut? By statute, no sooner than 90 days after the complaint is made returnable, unless both spouses attest under oath that they agree on all terms and the court waives the wait. Many cases take longer.

Does a cash buyer pay full market value? No. A cash offer is below what the house might bring on the open market, because the buyer takes the repair, carrying and resale risk. What you save in fees is real, but it doesn't close the gap.

Do I have to sell to you, or use Rydon Realty? No. You can list with any brokerage, sell it yourself, or keep the house. Get a second opinion from a brokerage that has nothing to do with me.

What if we owe more than the house is worth? Tell me the payoff and I'll tell you what I see. There's a path for underwater houses, and I'll point you to it, but the first step is the numbers.

Is this legal advice? No. I'm not an attorney. Your divorce attorney should decide what the decree says about the house, and a CPA can answer tax questions.

Turning Point Properties LLC is a real estate investment company in Enfield, Connecticut, registered with the Connecticut Department of Consumer Protection as a real estate wholesaler, REW.0000006. Sean Wilder is a licensed real estate broker in Connecticut (REB.0794687), Massachusetts (1000680), and Rhode Island (REB.0005242), and is Broker/Owner of Rydon Realty LLC. When Turning Point is purchasing a property it acts as a principal — the buyer — and does not represent the seller. This article is general information about Connecticut law, not legal or tax advice. Consult a Connecticut real estate attorney about your contract and a CPA about tax consequences.

Turning Point Properties LLC · Enfield, CT · (860) 300-2323