When a married couple separates, if they can reach an agreement on all of the issues between them, they may choose to sign a separation agreement. A separation agreement is a contract that says how they have agreed to divide property and debt, how family support will be provided, if any, and what they will do about parenting time if they have children together. One of the usual terms contained in it is a free-trader-agreement (FTA). If there is no separation agreement, an FTA can be a short contract by itself.
What’s the Problem?
When married couples acquire a mortgage loan, both usually sign the promissory note, which means they both have a legal obligation to make mortgage payments. That’s pretty straightforward. But when only one spouse signs a promissory note, only he or she owes the money. To oversimplify the problem, if the home-owner dies before becoming divorced, the surviving spouse has no legal responsibility to make the mortgage payments. But regardless of the fact that a married couple is separated, as a spouse, the non-home-owner would still have certain inheritance and survivorship rights to the property.
Remedy #1 – Free Trader Agreement
Mortgage lenders regularly require separated parties to sign an FTA, which is an agreed-upon right for each spouse to buy (i.e., trade) freely (i.e., without interference from the other) before they lend money to buy a home. The mortgage company will own the home if they foreclose on the loan. They don’t want to share ownership of the home with the other spouse who isn’t even obligated to make mortgage payments. The purpose of an FTA is make sure the non-buying spouse waives all claim to the house, including inheritance and/or survivorship rights. These agreements clarify that either spouse is free to get a mortgage in his or her name individually, without the signature of the other spouse. FTAs are recorded at the office of the Register of Deeds, which makes them public record. With the agreement, the spouse buying the home has exclusive ownership of it (and the responsibility of paying for it) even though he or she is married. Like all contracts, both parties must voluntarily agree to sign it.
Remedy #2 – The Divorce
When a divorce decree is granted, the other person is no longer a spouse, so the mortgage lender no longer has the problem of an ex who is still a surviving spouse even if they were separated for some time when the home was purchased. However, in North Carolina, a spouse can’t even file for the divorce until he or she has been separated for at least one full year. When a spouse files for a divorce, it can take two to three months before the divorce decree is granted. When the other spouse refuses to sign an FTA, the only remedy is the divorce, which is nearly impossible to contest because it is based on a one-year separation.