Divorced or divorcing spouses often call me to help them sell their house. Sometimes they say they have a very simple divorce. No kids, no complicated assets to divide up. Just a mutually agreed upon decision to part ways.
“There is that house we need to sell. But, there’s no equity to split, so it’s not a problem. We owe more than it’s worth.”
I’ll ask, “What does your divorce attorney say about that?”
“We’re not wasting money on lawyers. We went to the court house and got a do-it-yourself divorce packet, filled it out ourselves and filed,” comes the reply. They may also tell me it is an uncontested divorce.
To which I reply, “I can’t guarantee your lender will accept less than owed. They may want you to stay obligated on some or all of the difference. I’m not a lawyer and can’t give you legal advice; you need to have a plan on how you will divide up the debt.” An uncontesed divorce can become highly contested when there's a pile of debt left over.
There are many variations of this debt dialogue
When a house sells for an amount SHORT of what is owed, it is called a short sale. The lender may or may not forgive the difference. If the sellers have decent income or other separate assets, the lender may want them to contribute to the loss. If the lender holds the borrowers accountable for the deficiency, and the borrowers are divorced, they must have an agreement on who is paying what and when.
In the case of an underwater mortgage, a short sale or a foreclosure, the spouses should have legal counsel so they can manage the consequences and not just go with the flow at the last minute under pressure. I am not trying to get homesellers to spend money on lawyers, I am trying to help sellers avoid foreclosure in complex divorce situations.
Divorce lawyers, a mediator and a family law judge can work out with the spouses what needs to be done in a worst case scenario of house debt obligations.
We have helped many divorcing couples in Louisville KY sell their house for less than owed and had their lender forgive the difference. However, every case is fact-specific and the lender may not waive the deficiency. Divorce attorneys should consult with a short sale Realtor about the possible outcomes of a short sale.
If in Louisville KY or surrounding counties, please call Dave Halpern, Real Estate Broker, Louisville Short Sale Expert, at (502) 664-7827.