Garn-St. Germain Act & Joint Mortgages in Divorce: A Key Option for Keeping the Home

Going through a divorce can raise numerous challenges, especially when it comes to dividing property and deciding who will keep the family home. If you’re in this situation and want to retain the house but cannot qualify for a refinance, there may be an alternative solution available through a lesser-known law: the Garn-St Germain Depository Institutions Act of 1982. This federal protection can help divorcing homeowners retain their current mortgage terms, avoiding a costly refinance with higher interest rates. Here’s how this law works and what it could mean for you.

Key Benefits of the Garn-St. Germain Act in Divorce Cases

Retaining the Existing Mortgage in Divorce

When one party decides to keep the home in a divorce, the Garn-St. Germain Act allows them to continue making payments on the existing mortgage without the lender viewing it as a new loan. This option is particularly beneficial as it bypasses the usual requirements involved in obtaining a new loan, such as credit checks, appraisals, and income verification. In today’s market, where interest rates may be significantly higher than those of existing mortgages, this could be a considerable advantage.

Different from Loan Assumptions

Unlike a loan assumption, where one party must qualify for and officially take over the mortgage in their own name, the Garn-St. Germain Act enables the remaining party to keep making payments without having to alter the original loan terms or ownership structure. The mortgage stays in the names of both parties, which can streamline the process and avoid costly lender fees associated with a full refinance or assumption.

Protection in Probate Situations

The Garn-St. Germain Act is also applicable when a home is transferred to an heir or beneficiary after the homeowner’s death. In such cases, the recipient can take over mortgage payments without it being considered a new loan, offering similar benefits as in divorce scenarios.

Key Considerations for Divorcing Homeowners

Credit Implications for the Out-Spouse

A potential drawback of keeping the existing mortgage in both names is the impact on the credit of the spouse who no longer resides in the home (the “out-spouse”). Even if they relinquish their ownership rights to the property, they remain financially responsible for the mortgage as long as it’s in both names. If the in-spouse falls behind on payments or defaults, it could affect the out-spouse’s credit rating, leading to long-term financial complications.

Importance of Trust and Communication

Using the Garn-St. Germain Act as a solution requires a high level of trust between both parties. The out-spouse needs to be confident that the in-spouse will consistently make timely mortgage payments. Clear communication and, ideally, a formal agreement can help mitigate the risks associated with shared mortgage responsibilities post-divorce.

The Bottom Line: A Valuable Option for Divorcing Homeowners

The Garn-St. Germain Act provides divorcing homeowners with an alternative path to keep their home without the logistical and financial challenges of a refinance. For many, this act offers a lifeline, preserving access to favorable mortgage terms during a difficult transition. If you have questions about how this law could apply to your specific situation, consult with a mortgage specialist can offer valuable guidance to help you make the most informed decision.

If you’re ready to sell your home and need expert advice, consider working with a divorce real estate expert like Shannon Lindstrom with RE/MAX Results who understands the unique challenges of the Twin Cities market.

Shannon Lindstrom, Realtor®, CDRE®, CREDS, CRS, GREEN, MILRES, MRP, VCA
RE/MAX Results
7373 Kirkwood Court No, Ste. 300
Maple Grove, MN 55369
Direct: 612-616-9714
Lindstrom_S@msn.com
Shannon@ShannonLindstromRealtor.com
www.ShannonLindstromRealtor.com
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