The Hidden Risk in Loan Assumptions

Why Your Client Still Needs a CDLP®

In today’s rising-rate environment, many divorcing homeowners are asking a familiar question:
“Can I just assume the existing mortgage?”

At first glance, a loan assumption can appear to be the simplest path forward, especially when one spouse intends to keep the marital home and the existing mortgage has a low rate. But here’s the truth: loan assumptions are rarely simple, and they are never guaranteed.

Too often, clients are advised to “just call their lender” to initiate the process. Unfortunately, that one call can lead to months of delay, unexpected denials, and unnecessary financial and emotional stress. This is exactly where the expertise of a Certified Divorce Lending Professional (CDLP®) makes all the difference.

Assumption vs. Qualification: Not the Same Thing

The most common misunderstanding in divorce cases is that a loan assumption replaces the need for mortgage qualification.

It doesn’t.

Even when a loan is assumable, the lender must still verify that the assuming borrower qualifies under current underwriting guidelines. That includes credit, income, debt-to-income ratios, and often proof of continued or consistent support income. The assumption may transfer the loan into one party’s name, but it does not change the lender’s responsibility to ensure the new borrower meets all financial criteria.

For many divorce attorneys and mediators, this distinction is easy to overlook, but it’s critical. Without proper qualification, the assumption process can collapse after the decree is finalized, leaving the staying spouse unable to complete the transfer and the vacating spouse still liable on the note.

The Equity Equalization Hurdle

Another significant, and often misunderstood, factor is equity equalization.

Many lenders require that any equity equalization outlined in the divorce decree be fully executed and finalized before an assumption can be approved. This means that if the staying spouse owes the vacating spouse a lump sum for their share of equity, that distribution must occur first, before the assumption can even move forward.

In practice, this often means:

• The divorce decree must be finalized and recorded.

• The equity payment must be completed and documented.

• Only then can the assumption request be reviewed and processed by the lender.

Even after all of this, there is still no guarantee of approval. Some lenders require up to six months to process assumptions once all documentation is submitted, and others may deny the request based on updated financial or credit requirements.

This creates a painful reality for many divorcing homeowners: what appears to be a clean, low-cost solution can become a six-month waiting game with no guaranteed outcome.

State Statutes Are Emerging, But They Still Require Qualification (and Planning)

A growing number of states have begun to codify an assumption pathway for divorcing borrowers on conventional (non-government-backed) loans. Notably:

• California added Civil Code §2951, requiring that conventional home mortgage loans originated on or after January 1, 2027, include provisions allowing one co-borrower to assume the other’s share “in connection with a decree of dissolution of marriage, legal separation, or incidental property settlement,” if the assuming spouse qualifies under the lender’s standards.

• Maryland enacted legislation (HB 1018 / SB 689), effective October 1, 2025, requiring covered conventional loans to include a divorce-assumption provision and mandating early disclosures. It also clarifies that an assuming spouse must meet lender qualification requirements.

Two key realities for divorce professionals:

1. This isn’t universal. As of November 3, 2025, statutory assumption provisions tied to divorce are in place in at least California and Maryland; most other states have not enacted similar statutes for conventional mortgages.

2. Qualification is still mandatory. Even where statutes exist, the assuming spouse must satisfy the lender’s underwriting requirements (credit, income, DTI, etc.). California’s law states the assuming borrower must qualify “as determined by the lender,” and Maryland’s advisories repeat that the lender must agree the remaining spouse qualifies independently.

Important scope note: These laws focus on conventional loans. They do not create an assumption right for reverse mortgages, and they do not apply to government-insured or guaranteed products (FHA, VA, USDA), which have their own separate assumption rules.

Practice Tip (CDLP® Assist & Support)

Where statutory assumption paths exist, a CDLP® can assist and support the entire assumption process by:

• Confirming loan type and statutory coverage

• Mapping qualification requirements and timelines

• Coordinating with counsel on equity equalization language and sequencing

• Preparing the assumption package

• Tracking release-of-liability conditions for the vacating spouse

Planning Right the First Time Is Always Less Expensive Than Fixing It Later

When a client is told to “just call the lender,” they’re starting the process backward.

A CDLP® knows how to begin with the end in mind by reviewing the divorce terms, assessing the feasibility of an assumption, and ensuring that the structure of the settlement supports mortgage approval under current lending rules.

In other words, CDLPs plan for success before the ink dries.

That’s not something most lenders—or even loan officers—are trained to do in the context of divorce. A CDLP® evaluates all angles:

• Does the staying spouse meet income requirements, or should spousal or child support be structured differently to qualify?

• Is a loan assumption even in the spouse’s best interest from a tax and affordability standpoint?

• Does the lender require the equity equalization payment before approval?

• Is the vacating spouse truly being released from liability, or will the lender retain both names on the note even after the assumption?

• Would a refinance or delayed refinance provide more financial security and faster resolution than waiting for an assumption?

Beyond evaluation, a CDLP® can assist and support the assumption process by helping clients prepare documentation, anticipate underwriting hurdles, and communicate effectively with lenders to ensure the process moves as efficiently as possible.

These are complex, interdependent questions that should be addressed before the decree is finalized. Once final, options narrow, and solutions become more expensive.

The Role of the CDLP® in Protecting Legal Outcomes

The best family law professionals understand that financial strategy is not one-size-fits-all.

A CDLP® bridges the gap between divorce settlement language and real-world mortgage approval, ensuring that the terms agreed upon in mediation or court translate into successful execution afterward.

Collaboration in practice includes:

• Reviewing draft settlement terms for mortgage feasibility

• Providing guidance on assumption timelines and documentation requirements

• Assisting in the assumption process itself, including lender coordination and document gathering

• Helping legal teams set realistic expectations regarding qualification, credit re-establishment, and timing

• Mitigating the risk of ongoing liability for the vacating spouse, since an assumption alone offers no guarantee without a written lender release

This collaborative approach protects both the client’s financial well-being and the attorney or mediator from avoidable post-decree complications.

Real-World Example: When “Simple” Becomes Costly

A divorcing couple agreed that the wife would retain the home and assume the existing mortgage. The decree stated that the husband would be removed from the note upon assumption approval.

When the wife applied, the lender required the equity equalization payment to the husband be completed first, and she had been given a maintenance buyout rather than monthly support. After a 90-day review, it was determined she did not meet income qualification requirements and could not execute the equity equalization.

Result: Assumption denied.

Now both parties are stuck: the wife must refinance at a higher rate, and the husband remains legally liable on the existing note until that occurs.

If a CDLP® had been consulted early, the decree and payment structure could have been designed to align with lending timelines, preventing months of stress and financial uncertainty.

The Takeaway for Divorce Professionals

Loan assumptions are not shortcuts; they are strategic transactions that require the same level of planning and expertise as a refinance or purchase.

Before advising a client to contact their lender, partner with a CDLP® who can:

• Determine whether an assumption is feasible and in the client’s best interest

• Coordinate equity equalization timing and execution

• Assist and support the assumption process through qualification, lender communication, and release of liability

• Protect both spouses through proactive planning

Because planning right the first time is always less expensive than fixing it later.

If you’re advising divorcing clients about keeping the marital home or transferring mortgage liability, don’t leave it to a phone call with the lender. Consult with a Certified Divorce Lending Professional (CDLP®) before any settlement terms are finalized.

Disclaimer:
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or a tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only and are subject to market changes. This is not a commitment to lend. Rates change daily—call for current quotations.

© Divorce Lending Association, LLC