When finances become tangled up in divorce, defaulting on a home loan is almost never the right answer and can turn a major asset into a liability. The Raleigh, North Carolina divorce attorneys of Gailor Wallis and Hunt discuss available options to keep a house out of foreclosure during a divorce.
According to Realty Trac, the leading online marketplace for foreclosed properties and source for statistics used by CNN, MSNBC, FOX and Yahoo, one in every 400 U.S. housing units received a foreclosure filing during May, 2010. The data was presented via press release from the firm on June 10, 2010.
According to the release, a total of 96,462 homes received a default notice in May, which amounts to a seven percent decrease from the previous month and a 22 percent decrease from May 2009. While the decrease represents a positive step for those battling the suffering housing market, the number is still significant.
Bloomberg printed an article Monday, June 30, titled “Foreclosed Homes Sell at 27% Discount as Supply Grows,” explaining that the discount on foreclosed homes will likely remain between 25 and 30 percent as banks attempt to manage the housing market. The article quotes Realty Trac when it states, “About 31 percent of all U.S. sales in the quarter were of homes in some stage of foreclosure.”
These discounts may be good for a buyer, but exemplify a common problem that has been plaguing homeowners. When a home mortgage goes into distress, the property that was once an asset becomes a liability. For those in the midst of a divorce, the task of separating assets turns into the task of separating debts, liabilities and bad credit.
Fadi Baradihi, president of the Institute of Divorce Financial Analysts, was quoted in an article titled, “Recession, Divorce and Home: They Don’t Mix,” saying “It used to be that couples fought over the house because of continuity and stability for the children…That’s not happening anymore. Now everybody wants to run from it.”
As divorce is always a matter of finances, it is in the best interest of both parties not to let a jointly owned home go into foreclosure. While spite, ongoing legal fees or other financial issues may be a reason for not making a house payment, it is important to remember as long as both names are on the mortgage, both parties are responsible for payments.
The same article that reported Baradihi’s thoughts on homes and divorce also offered some options to consider when a home that neither party can afford alone is part of a divorce. The North Carolina divorce lawyers of Gailor, Wallis and Hunt explain what is meant and what may happen if these options are chosen:
Wait it Out
If both parties can agree to hold onto the home for a few years after the divorce, they can avoid selling the house in a market where the majority of homes are selling for much less than their worth. In this situation, one spouse typically leaves the home and rents a place to live while the other remains in the marital residence until the house sells Payment of the existing mortgage, taxes and insurance while “waiting it out” are typically taken into account in determining any child support or alimony obligation.
If a couple waits until a pre-determined date to sell the home, they can then split the proceeds at the time of the sale rather than the time of the divorce. Under this option both parties should check with their accountants to determine what, if any tax ramifications will occur from the delayed sale.
Renting the House
Another option for divorcing couples that may not want to sell yet is to rent the home. In this situation, the husband and wife move into separate rentals or purchase new homes and rent the marital residence to someone else. This is only beneficial if the debt and other expenses of carrying the house are covered by the rent and the parties collectively pay less for rent on new residences than they would on their home mortgages.
Both options have a few downfalls. As long as both parties are liable jointly on the mortgage loan on the property, it will be nearly impossible to finance another house until the current mortgage is paid off or assumed by another party. Banks are more cautious than ever about financing someone with existing mortgage commitments. Also, it keeps each party wrapped up in the divorce for longer than may have been anticipated. As divorces are not the prettiest of transactions, separated or divorced spouses may not want to remain financially tied together for any longer than necessary.
Selling the House
Sometimes, selling the house is the only option either caused by the necessity to generate cash and reduce debt or by a court order. In these circumstances it is likely that the sale will be a “short sale.” In a short sale, the couple negotiates with the lender to pay the difference between the sale price and the amount they owe or a lesser amount. A short sale is likely to hurt the couple’s individual credit scores.
Obtaining a divorce lawyer experienced in the aspects of home sales in the context of divorce and as well as complex business valuations in a divorce is always a worthwhile decision. The lawyers of Gailor, Wallis and Hunt are dedicated to the areas of family law and the complex business transactions that accompany divorce.
Founded in 1994, Gailor, Wallis and Hunt, PLLC is one of North Carolina’s most accomplished firms practicing exclusively in the area of family law and domestic relations litigation. If divorce has left you with a house that, without some type of compromise, will fall into foreclosure, contacting an experienced lawyer will prove beneficial for more than just the finances. Hiring an attorney that will work towards your best interests will provide peace of mind in an otherwise stressful situation.
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