California Code 2951: New Rules for Mortgages in a Divorce

One of the most challenging aspects of asset division in a California divorce is dividing mortgage loans. Deciding which spouse will stay in the home is a challenge, but handling the mortgage adds another layer of complexity.

California Civil Code Section 2951 aims to simplify the process. The new law will create guidelines for one co-borrower to buy out the other and assume responsibility for the mortgage.

The law will reduce unnecessary steps for removing a person from a joint mortgage after divorce, allowing a divorced spouse to remain in their home. It applies only to mortgage loans originated on or after Jan. 1, 2027.

What is California Civil Code Section 2951?

Under Section 2951, specific mortgage loans must include a provision allowing one borrower to buy out the other’s property share during a divorce, legal separation, or an incidental property settlement. To qualify, the loan must meet all the following criteria:

• Conventional home mortgage – The loan cannot be federally insured or guaranteed.
• Owner-occupied property – The borrowers must live in the property as their primary home, with the loan used for personal, family, or household purposes.
• Property with four or fewer units – The property can only be a regular single-family home (single unit) up to a fourplex (four units).
• Qualifying co-borrower – The co-borrower, typically the husband or wife, must independently qualify for the existing mortgage. Lenders will evaluate eligibility based on income, credit history, and other factors.

Section 2951 does not determine which spouse keeps the home if both want it. The law takes effect only after negotiation, mediation, or a court decision determines asset division under California’s community property laws.

Why does it matter?

Co-borrowers on a conventional home mortgage loan can expect to receive several benefits from the law:

• Avoid refinancing – Instead of forcing them to replace the existing mortgage, the spouse staying in the home can keep the original loan at a lower interest rate.
• Protect the leaving spouse – After one co-borrower buys out the other, the departing spouse can stop making payments.
• Clarify lender-borrower relationship – Previously, if lenders refused mortgage assumption and the staying party could not afford to refinance, the court might force them to sell. The law specifies when a divorced borrower can keep the home and assume the loan.

How are joint mortgage loans dealt with now?

Refinancing

Until 2027, the process of removing a person from a joint mortgage in California is often complicated. A divorce judgment should clearly state what will happen with the home and mortgage. Sometimes the judgment assigns the loan to the spouse keeping the property.

Even if the court grants one spouse the house, the other spouse remains liable for the mortgage. To remove the other spouse’s name and gain control of the property, the one keeping the house usually must refinance or obtain a new mortgage loan at current market interest rates and terms.

If the borrower remaining in the home does not refinance voluntarily, a court may order it. While refinancing helps divorcing couples cut financial ties, it can also be a financial strain for the spouse keeping the home.

Lender’s Authority

Currently, the law does not require mortgage lenders to comply with divorce decrees or court orders. Lenders do not release a borrower from a mortgage unless the loan is refinanced or paid off.

A lender can seek payment from both borrowers, even if the court assigns one party responsibility. The staying spouse’s missing payments can damage both parties’ credit, and the lender may pursue either party for repayment.

Lenders often restrict loan assumption or impose strict qualifications. No current law requires lenders to allow a loan assumption in the case of a divorce or division of assets – Section 2951 will remedy that.

Final Thoughts

The current system structures co-borrower arrangements so that selling the home is the easiest way to sever financial ties. Borrowers can refinance, but they may find difficulty due to income, credit issues, or high interest rates.

Since the protections under California Civil Code 2951 will not take effect until 2027, divorcing couples must continue to navigate a lender-dominated system that relies heavily on refinancing.

Understanding the rules that divorce decrees and lenders enforce can prevent costly surprises and reduce emotional stress. A family law attorney can help navigate the current system and prepare borrowers for the implementation of California Civil Code 2951.

Vanessa Soto Nellis is a Certified California Family Law Specialist at Lewitt Hackman.