Divorced Wife Off Deed, Still on Mortgage, Ex-husband on Both. Who Can Claim Mortgage Interest on 1040?

Atty. Carr’s avvo.com response was marked as “helpful” by ┬áthe Asker:

Levittown, PA
Practice area: Real Estate

Q: For a friend: Ex-wife is on mortgage, but signed a quit claim deed a few years ago when the house was in the beginning stages of foreclosure. After bankruptcy, the bank worked out a deal with him and house was saved. However, the bank left his ex-wife on the mortgage note. She has not lived in the house for about 4 years and has never contributed to any of the house payments, before or after the divorce proceedings began. Our understanding is that she has no claim to the house, but is still responsible for the mortgage. She even gets bank statements regarding the payments and mortgage interest. This should mean that she cannot claim the mortgage interest on her taxes, correct? What proof would she have to present when she files?

Atty. Carr’s response:

If the QC deed were duly recorded it would remove her legal interest in the property. The fact that she was left on the mortgage, affects only the mortgage. The lender is not likely to remove her as its obligee even though the private agreement between the twoex’s may require him to make the payments and not her. As a matter of fact and law, she still has a requirement to make payments on the home while having no remaining legal interest in the property. (This is a frequent result in divorce.) Whomever makes the payments is the one legally entitled to the deduction. However, the lender is obligated by law to send her a 1099 because she is still on the mortgage which she could conceivably attach to her return and claim the deduction. The IRS has special rules when two people claim the same deduction.. If later audited by the Service, they could ask for cancelled checks to show she actually made the payments and she would then lose it.