Many people think of their homes as one of the most important assets to be divided during a divorce. In many cases, however, divorcing couples are behind on payments on a house and in some cases are even facing foreclosure. It is critical to understand what to do if you are facing divorce and your home has more debt than value. Fortunately, in these situations a seasoned divorce attorney can help you understand how to handle complicated matters like this.
The Responsibility for Mortgage
To begin handling issues involving a house, divorcing couples should determine who is responsible for the mortgage debt. While some couples take out mortgages jointly and the names of both spouses are on the title, other times, only one spouse takes out the mortgage. In cases in which a mortgage is jointly owned, both spouses are responsible for repaying the debt and would both be liable for any deficiency following foreclosure. If only one spouse signs the mortgage, this spouse will be solely responsible for the debt.
When One Spouse Wants to Keep the Home
After deciding who is responsible for the mortgage debt, the divorcing couple should decide if either spouse wants to continue living in the house and making monthly payments. If one spouse wants to stay in the house, that spouse can often assume the mortgage and take over the loan. If a mortgage, however, contains a due on sale clause then a spouse will be unable to assume the mortgage. These clauses state that if property is sold, the entire loan balance will be accelerated and must be repaid promptly. Under the Garn-St. Germain Act, however, lenders are prohibited from enforcing a due on sale clause if a mortgage is transferred as part of a divorce decree or separation agreement. Sometimes, former spouses who want to keep the property seek refinance options and place the property in only their name, which releases the other spouse from the debt. As a result, some divorce orders require spouses who want to remain in a house to seek refinancing.
The Role of Post-Divorce Foreclosure
If both spouses take out a mortgage and the spouse who retains ownership of the house stops making mortgage payments, there is still a likelihood that the lender will pursue legal action against both former spouses. If foreclosure occurs, both spouses’ credit scores will be damaged and could result in a joint deficiency judgment.
What Happens if Neither Spouse Wants the Home
If neither spouse wants the house, there are several available options which include selling the property to pay off the debt, renting out the property and using the rental income to make monthly payments, arranging a short sale, or completing a deed in lieu of foreclosure.
Speak with a Seasoned Divorce Lawyer
If are you navigating the divorce process and have questions about mortgage debt, it is a wise idea to immediately obtain the assistance of a seasoned attorney. Contact Vayman & Teitelbaum P.C. today to schedule an initial free consultation.