Detailed Answer

Short answer: In Alabama, refinancing to buy out a co-owner generally means one owner pays off the existing mortgage by obtaining a new mortgage in only their name (or otherwise obtaining financing), then pays the other owner the agreed buyout amount and records a deed transferring full ownership. If refinancing isn’t possible, the parties may use a negotiated buyout agreement, execute deeds (usually a quitclaim or warranty deed), or, as a last resort, one owner can file a partition action in court to force a sale. This article explains the common steps, practical issues, and Alabama-specific considerations you should know before you start.

How refinancing to buy out a co-owner typically works (step-by-step)

Decide the buyout structure and price. Owners agree on a buyout amount (price the remaining owner will pay the departing owner). Options for determining price include a negotiated number, a recent appraisal, or a formula based on equity after paying off the existing mortgage and closing costs.
Check the mortgage. Review the current mortgage documents for any due-on-sale or co-borrower clauses. Most mortgages contain clauses that give the lender the right to accelerate the loan if ownership changes. That’s why lenders usually require a formal refinance or assumption.
Get an appraisal and estimate of payoffs. Obtain a current appraisal or broker price opinion to confirm property value. Get a payoff statement from the current lender so you know how much remains on the mortgage.
Apply to refinance in one owner’s name. The owner who will remain on title applies for a new loan sized to pay off the old mortgage plus any closing costs and — if desired — the cash needed to buy out the co-owner. The borrower must qualify alone under the lender’s income, credit, and debt-to-income requirements. If the borrower cannot qualify alone, alternatives include finding a co-borrower, using a different lender or program, or negotiating another solution with the co-owner.
Close the refinance and pay the departing owner. At closing, the new loan pays off the existing mortgage. The buyer/remaining owner provides the agreed buyout funds to the departing owner (often via a closing agent or attorney escrow). After payoff, record the new mortgage in the county records and obtain a release/satisfaction of the previous mortgage.
Transfer title to reflect sole ownership. The departing owner signs a deed (commonly a warranty deed or quitclaim deed) transferring their interest to the remaining owner. The deed must be properly executed, notarized, and recorded in the county where the property sits to update public records.
Record mortgage satisfaction and deed. Confirm the prior mortgage is released of record (a satisfaction of mortgage or release). Make sure the new deed and mortgage are recorded promptly so the title reflects the new ownership and encumbrance.
Follow up on tax and insurance updates. Update homeowner’s insurance, property tax billing, and any escrow accounts to reflect the new owner. Consider consulting a tax professional about capital gains, basis adjustments, and potential gift tax issues if the buyout price differs materially from fair market value.

Key legal and practical issues under Alabama law

Lender approval is decisive. Lenders decide whether to approve a refinance or a loan assumption. Removing a co-borrower from a mortgage almost always requires refinance or lender consent.
Title transfer vs. mortgage liability. Transferring title (by deed) can remove an owner from the deeded ownership, but it does not remove that person from liability on the mortgage unless the lender releases them. Always confirm the departing owner receives a written release from the lender or that the loan is paid in full.
Deeds and recording in Alabama. To change ownership you must execute a valid deed and record it in the county probate or recorder’s office where the property is located. A quitclaim deed can transfer whatever interest the grantor has without warranty; a warranty deed offers stronger assurances to the grantee. Use a deed form appropriate for Alabama and follow execution and notarization rules.
If you cannot refinance: alternative options.
- Agree on a seller-financed buyout (the staying owner signs a promissory note to the departing owner secured by a mortgage or deed of trust).
- Use a mortgage assumption if the lender permits and qualification rules are met.
- Partition action: if owners cannot agree, Alabama law allows a co-owner to ask a court to partition (divide or sell) the property. See Alabama’s statutes and local court rules for partition procedures; a court-ordered sale can resolve disputes but involves litigation costs and judicial timelines.
Partition actions (if necessary). When negotiation fails, a partition lawsuit can force division or sale of the property. Partition can produce a fair market sale (and distribution of proceeds) or, in rare cases, an in-kind division if the property is divisible. Consult an Alabama real property attorney for the local procedure and likely outcomes.

Relevant Alabama resources

Alabama Code and searchable statutes: https://alisondb.legislature.state.al.us/
Alabama Judicial System and courthouse/contact info (for filing or records questions): https://judicial.alabama.gov/
County probate/recorder offices (for deed recording and mortgage satisfaction) — search your county portal from the Alabama Judicial site above.

When to call an attorney or other professionals

Get professional help when:

The buyout amount or valuation is disputed.
One owner can’t qualify for refinancing alone.
There are title defects, liens, judgments, or unresolved encumbrances.
You expect complex tax issues (e.g., basis adjustments, potential gift tax).
You anticipate a partition or contested litigation.

Practical timeline and costs to expect

Typical timeline: 30–60 days for a conventional refinance (can be longer if title issues exist); shorter if using seller financing or an assumption (if approved). Costs may include appraisal fees, lender closing costs, title insurance, recording fees, attorney fees (if used), and any amount paid to the departing owner for the buyout.

Common pitfalls and how to avoid them

Don’t accept an unrecorded deed as proof of transfer. Always ensure deeds and mortgage releases are recorded.
Don’t assume a deed removes mortgage liability. Confirm the departing owner receives a written release from the lender or that the loan was paid off.
Document all agreements in writing and use escrow for buyout payments at closing to avoid disputes.
Watch for tax consequences if buyout price differs materially from market value—get tax advice.

Helpful Hints

Get a current appraisal early so buyout discussions start from a realistic number.
Ask the lender about refinance requirements, timelines, and whether an assumption is possible.
Use escrow or a closing agent to handle the payoff, disbursement to the departing owner, and recording to avoid mistakes.
Consider a short written buyout agreement spelling out price, payment timing, deed type, and who pays closing costs.
Keep title insurance policies and mortgage payoff statements in a safe place after closing.
If a co-owner is uncooperative, consult an Alabama property attorney early to discuss partition procedures and likelihood of court-ordered sale.

Disclaimer: This article explains common refinancing and buyout steps under Alabama practice but is not legal advice. Laws change and every situation is different. Consult a licensed Alabama attorney and your lender before taking action.