Divorce is never easy, and one of the most challenging aspects for many Maryland couples is deciding what happens to the family home. For years, divorcing spouses faced significant obstacles when one party wanted to keep the marital residence but couldn't qualify for a new mortgage or refinance the existing loan. Thanks to Senate Bill 689 (SB689), a groundbreaking new Maryland law, divorcing couples now have more options when it comes to mortgage assumptions and property division during divorce proceedings.
Understanding Maryland's New Divorce Mortgage Assumption Law
Senate Bill 689, officially titled "Financial Institutions – Conventional Home Mortgage Loans – Assumption and Required Disclosures," represents a significant shift in how divorcing couples can handle their home mortgages in Maryland. This new legislation requires banking institutions, credit unions, and mortgage lenders to include specific provisions in all conventional home mortgage loans that directly benefit divorcing spouses.
Under this new Maryland divorce law, financial institutions must now allow any existing borrower on a conventional home mortgage to purchase the property interest of other borrowers in the event of a divorce. This mortgage assumption provision applies to new loans originated after the bill's effective date and, remarkably, applies retroactively to conventional home mortgage loans entered into before the law took effect.
How Divorce Mortgage Assumptions Work Under SB689
The new Maryland mortgage assumption law creates a structured process for divorcing spouses who want to retain the family home. When a married couple jointly owns property with a conventional mortgage, and they decide to divorce, one spouse can now assume the existing mortgage without needing to refinance or obtain entirely new financing.
This mortgage assumption process allows the spouse keeping the home to essentially step into the shoes of both borrowers on the existing loan, maintaining the current interest rate, loan terms, and payment schedule. The departing spouse is then released from their obligation on the mortgage debt, though the specifics of this release must be negotiated and documented properly within the divorce settlement agreement.
For divorcing couples in Columbia, Maryland, and throughout the state, this represents a powerful tool in property division negotiations. Rather than being forced to sell the marital home because neither spouse can qualify for new financing alone, couples now have the option to transfer ownership through mortgage assumption, potentially providing stability for children and avoiding the costs and disruption of selling during an already difficult time.
Maryland Family Law and Property Division in Divorce
To fully understand the impact of SB689, it's essential to understand how Maryland family law handles property division, regardless on how it is titled, during divorce. Maryland is an "equitable distribution" state, meaning that marital property is divided fairly—though not necessarily equally—between spouses during divorce proceedings.
Under Maryland Family Law Code § 8-205, courts consider numerous factors when determining equitable property division, including the duration of the marriage, contributions of each party to the marital property, the circumstances that led to the divorce, and the economic circumstances of each spouse. The family home often represents the most significant marital asset, making decisions about the residence particularly consequential.
Before SB689, even when a divorce settlement agreement awarded the family home to one spouse, that spouse often faced the impossible task of refinancing the mortgage in their name alone. Many divorcing individuals found themselves unable to qualify due to income limitations, credit issues, or debt-to-income ratio problems, forcing unwanted home sales and disrupting living arrangements, particularly for children.
The new Maryland divorce mortgage law removes this barrier by requiring lenders to allow assumption of existing conventional mortgages, giving divorcing spouses a viable path to retain the marital residence without refinancing hurdles.
Disclosure Requirements for Maryland Mortgage Lenders
SB689 doesn't just create the right to assume mortgages in divorce situations—it also mandates that financial institutions inform borrowers about this right upfront. Under the new law, Maryland banking institutions, credit unions, and mortgage lenders must disclose the mortgage assumption provision in writing to loan applicants before the completion of the loan application.
This disclosure requirement ensures that Maryland homeowners understand their rights before entering into a mortgage agreement. For couples purchasing a home together, knowing that divorce mortgage assumption is available provides peace of mind and important information for long-term financial planning.
These disclosure provisions also apply retroactively, meaning that even if you obtained your conventional home mortgage before SB689 took effect, you still have the right to pursue mortgage assumption in divorce proceedings. This retroactive application makes the law immediately relevant to thousands of Maryland couples currently navigating divorce with existing mortgages.
Practical Implications for Divorcing Couples in Columbia, Maryland
For families going through divorce in Columbia and surrounding Howard County areas, SB689 creates several practical advantages. First, the ability to assume an existing mortgage preserves favorable interest rates that may have been locked in years ago. With mortgage rates fluctuating significantly over time, maintaining a low-rate mortgage through assumption rather than refinancing at current rates can save thousands of dollars annually.
Second, mortgage assumption through divorce eliminates the need to qualify for new financing based on a single income. Many divorcing spouses who could comfortably afford the existing mortgage payment find themselves unable to meet lending standards for a new loan due to changed financial circumstances post-divorce. The assumption provision addresses this problem by allowing continuation of the existing loan terms.
Third, keeping the family home provides stability for children during the upheaval of divorce. Maryland family law courts prioritize the best interests of children when making custody and property decisions. Having the option for one parent to assume the mortgage and retain the home allows children to remain in familiar surroundings, maintain school continuity, and preserve important community connections during a difficult transition.
Legal Considerations and the Divorce Settlement Agreement
While SB689 provides the legal framework for mortgage assumptions in Maryland divorce cases, implementing this option requires careful legal drafting within your divorce settlement agreement. The marital settlement agreement must clearly specify which spouse will assume the mortgage, how the property interest will be transferred, and what consideration the departing spouse will receive for their equity in the home.
Under Maryland Family Law Code § 8-203, courts can consider the terms of any property settlement agreement entered into by the parties. A well-drafted agreement that incorporates mortgage assumption under SB689 must address several critical issues:
- Property valuation and equity distribution: The agreement must establish the current fair market value of the home and the outstanding mortgage balance to calculate equity. The spouse assuming the mortgage typically must compensate the departing spouse for their share of equity, either through cash payment, offset against other marital assets, or structured payments over time.
- Release of liability: While one spouse assumes the mortgage under SB689, the divorce settlement should specify that the departing spouse is released from liability. This requires coordination with the lender and may involve additional documentation beyond the divorce decree.
- Indemnification provisions: The spouse assuming the mortgage should indemnify and hold harmless the departing spouse from any future liability related to the home loan, protecting against default or missed payments.
- Refinancing contingencies: Some divorce agreements include provisions requiring the assuming spouse to refinance or assume the mortgage within a specified timeframe if possible, fully releasing the other party from any connection to the loan.
Working with Experienced Maryland Divorce Attorneys
Navigating the complexities of property division, mortgage assumptions, and divorce settlements requires experienced legal guidance. The new provisions under SB689 create opportunities but also require careful implementation to protect your interests and ensure enforceability.
At The Law Offices of Thomas Stahl, our Columbia family law attorneys have extensive experience handling complex property division issues in divorce cases throughout Howard County and surrounding areas. We understand how Maryland family law statutes interact with the new mortgage assumption provisions and can help you develop a comprehensive strategy for your divorce case.
Whether you're considering divorce and want to understand your options regarding the family home, or you're currently negotiating a settlement agreement and need guidance on mortgage assumption provisions, our team can provide the knowledgeable representation you need.
Questions to Ask Your Maryland Divorce Lawyer About SB689
When consulting with a family law attorney about divorce and property division under the new Maryland mortgage law, consider asking:
- Does my existing mortgage qualify as a "conventional home mortgage loan" under SB689?
- What steps are required to implement mortgage assumption in my divorce settlement?
- How should we calculate equity distribution when one spouse assumes the mortgage?
- What documentation do I need from my lender to exercise my assumption rights?
- How does mortgage assumption affect other aspects of property division in my case?
- What are the tax implications of assuming the mortgage versus refinancing?
- How can we structure the settlement to protect both parties' interests?
Taking the Next Steps in Your Maryland Divorce Case
If you're facing divorce in Columbia, Maryland, or surrounding areas and have questions about how SB689's new mortgage assumption provisions might apply to your situation, don't navigate these complex issues alone. The decisions you make regarding your family home and property division will have long-lasting financial implications.
The Law Offices of Thomas Stahl provides compassionate, skilled legal representation for individuals and families going through divorce in Maryland. Our attorneys stay current on changes in Maryland family law, including new legislation like SB689, to provide you with informed guidance based on the most current legal standards.
We offer comprehensive divorce services, including property division, custody arrangements, child support, alimony, and all aspects of family law. Our approach combines legal expertise with understanding of the emotional and practical challenges divorce presents, helping you work toward solutions that protect your interests and support your future.
Contact The Law Offices of Thomas Stahl today to schedule a consultation. Visit our website or call 443-331-2770 to speak with an experienced Maryland family law attorney about your divorce case and how the new mortgage assumption law might benefit your situation.
Disclaimer: This article is provided for informational purposes only and does not constitute legal advice. The information contained herein is general in nature and may not reflect current legal developments or address your specific situation. Laws regarding divorce, property division, and mortgage assumptions are complex and fact-specific. For legal advice regarding your particular circumstances, please contact The Law Offices of Thomas Stahl or another qualified Maryland family law attorney. No attorney-client relationship is created by reading this article or contacting the firm through the website or phone number provided herein until a formal engagement agreement has been executed.