Three U.S. states are changing how traditional mortgage lenders manage home ownership during divorce. California, Maryland, and Virginia have passed laws requiring lenders to let co-borrowers take over existing mortgage terms if a divorce decree awards them the family home. These laws remove lenders’ ability to refuse such transfers, as long as the borrower meets standard underwriting rules.
Virginia’s HB 304, effective July 1, 2026, requires lenders to include provisions allowing loan assumptions for divorces or annulments. The law mandates lenders disclose these terms within three days of receiving a completed application. It prioritizes transparency early in the mortgage process.
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California’s AB 3100, set for January 1, 2027, enforces fixed mortgage rates and terms for assumptions tied to divorce. This applies to owner-occupied homes with multiple borrowers. Lenders can still assess applicants but cannot block assumptions if criteria are met.
Maryland’s HB 1018, effective October 1, 2025, mandates loan provisions enabling borrowers to assume mortgages after divorce decrees. The law applies to conventional loans not already covered by state or federal law. Retroactive rules include mortgages originated before the law’s start date.
All three states define “conventional” as non-federally insured or guaranteed loans. This is important because federal laws like Garn-St. Germain already restrict due-on-sale enforcement in interspousal transfers. However, the new laws expand protections by ensuring rate and term stability, even when a spouse isn’t a co-borrower.
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Challenges include potential conflicts with federal banking rules. National banks and federal savings associations may trigger preemption debates if not exempted. Legal experts note that 12 U.S.C. § 25(b) could apply if state laws “significantly interfere” with federal authority.
Compliance with the Truth in Lending Act (TILA) adds complexity. Assumptions under 12 C.F.R. § 1026.20(b) are treated as new transactions, requiring lenders to reassess repayment ability. Current Fannie Mae and Freddie Mac forms, which use permissive language, may not meet new requirements, prompting calls for state-specific riders.
Multistate lenders should create state-by-state matrices tracking key details like trigger events and retroactivity. National banks should prepare preemption arguments before separating loan portfolios. Industry watchers suggest this trend may expand, urging lenders to track legislative changes and update documents.
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Legal experts warn these laws might face pushback from federal regulators. Preemption arguments could delay implementation or spark legal challenges. Borrowers facing divorce may face fewer obstacles in keeping homes, though lenders will still assess creditworthiness before approvals.
For now, focus is on compliance. Mortgage professionals must adjust workflows to align with state-specific rules. Whether these laws become a national standard or remain regional remains unclear. But one thing is clear: conventional lenders can no longer refuse assumptions in divorce-related cases.
