Scenario: Male borrower owned property prior to marriage, wife is not on the deed. She is however, signed on a mortgage and also is a co-borrower on a loan secured by said property. They recently divorced and the divorce decree awards the male borrower the property. He want's to remove her name without refinancing if possible.

Question: What are the pitfalls...and would that really be legal for the bank to do through a modification agreement? The recorded mortgage will still contain her name if it is not re-recorded.

Thanks for your assistance and input.

Whether you can do this through a modification is a question for your legal counsel. The customer should re-apply for the loan and the spouse should be removed only if the remaining borrower qualifies. The divorce decree has no effect on the bank's current contract with the current borrowers.

Thanks for your input Randy!

In the event of a spouse removing an ex-spouses name from the mortgage, (Ex-spouse was not on the title but did sign the mortgage) and there was no new money involved with the transaction but the rate was lowered. Would this be considered a refinance and thus need early disclosures?

Did you handle this as a modification, or as a refinance? (replacing the old note with a new note)

We were told that we would have to do a new note in order to remove the ex-spouse's name. Wouldn't that mean that a new note was replacing an existing note. HOwever the only changes to that note is the name removal. WE think that this is more of a modification, but I can't get entirely behind that because there will be a new note.

I never released a party from the obligation. There is no upside to the bank, but you do lose a source of repayment.

Bec, if the old loan was satisfied and replaced with the new obligation due to the new note, then I would say you had a refinance of the loan.

That is what I was afraid of.
Thank you both for your imput.

Confronted with a question of not making disclosures I would say this was the result of "a court proceeding" and was exempt from the refi requirements.

On teh front end I would however say that you replaced one note, with another, and satisfied the first, and disclosures should have been made. Simply better safe than sorry.

1026.20 - A refinancing is a new transaction requiring a complete new set of disclosures. Whether a refinancing has occurred is determined by reference to whether the original obligation has been satisfied or extinguished and replaced by a new obligation, based on the parties' contract and applicable law.

Ihave done it, AFTER underwriting, via an attorney crafted modification. Have also done with new note.

That is going to be a very weak argument. The court proceeding had absolutely nothing to do with the bank.

First, did the ex-spouse sign the note or just the mortgage?
The only way this could be done as a modification would be if the borrower(s) on the note remains exactly the same.

If the note was signed by both the ex-spouses, the only way to remove the ex would be to qualify the borrower as an individual. That would make it a refi starting from square one with full disclosures, etc.

Like Andy said above, we would never release a party from a mortgage without doing a total refi. There's no advantage to the bank and plenty of potential pitfalls.

I know of no reason (forget secondary market) that you couldn't craft a modification that removed a borrower, so IMHO, it 'could' be done. Is it the best way to do it? No.

What management does or doesn't do from a S&S standpoint is up to the bank. If they want to release one party, that's fine and dandy...it's not really for us to opine on one way or the other.

To truly help the OP (Bec), the question is simple...was this a modification of the original note, or was this a refi. It 'sounds' like a refi. If you have access to in-house council that actually knows the difference, they would be a good one to ask what your specific situation really is.