This blog is not intended as legal advice. Is is the opinion of the writer based on working with over 70 couples forced to short sale their property as a result of or pending a divorce. The reader should use this blog post as a guidance and consult with a legal or tax professional.
Since the Divorce Rate is now over 50% there are many couples that are separating and realizing that it is not so easy to sell their home. With so many homes under water across Houston and Spring TX, many people who need to sell are realizing a short sale may be the only answer (Click here to see: What Is A Short Sale). In addition, many divorce agreements, legally known as decrees, are requiring the sale of the home.
Here are the most common issues we have seen that a divorcing couple faces when required to sell a home as a result of a divorce.
- Mutual Assets may need to be liquidated.
The terms of the divorce may require certain assets be sold, or you may decide selling the home is in your best interest. Often, even when one spouse is awarded the property either by divorce decree or mutual agreement, they may not be able to afford the loan payments and maintenance. - What is the current market value of the property compared to the mortgage debt?
If you own more on the home than what you can sell the property for, including closing costs, your home is considered upside down (Click here to see: What is Negative Equity Or An Upside Down Mortgage? ). Unless you have the money to pay the difference between what it sells for and what you owe the lender, then in most circumstances you will need to short sale the property. - The lender requires a hardship to qualify for a short sale. Does a Divorce qualify as a short sale hardship?
The good news is in most cases you are still eligible for a short sale due to the fact that Fannie Mae, Freddie Mac and almost all major banks do consider a divorce to be a reason for “Imminent Default.” In many cases, this applies even if you have not missed a payment. Many times borrowers just have to provide the bank with their divorce decree to prove there is a divorce and to show the terms of who is responsible for what. Often times a Separation Agreement can be enough.
- The difference between whose name is on title, or the Deed of Trust and who is responsible for the mortgage payments.
This is one of the most common scenarios we see. One spouse stays in the home, the other spouse may be responsible by divorce agreement to pay all or all or part of the mortgage payment.
The property title may be in both spouse's names or only in one. It may be that the divorce agreement awards the property and payment requirements to one of the spouses, even though the mortgage may be in the other spouse's name. So, you have one spouse living in the property and responsible for payments while the home mortgage is still under the other spouse's name.
This is going to be governed by the terms of the judgment. Unfortunately, too many divorces don't have the follow up to the judgment completed. The judgment might say that the husband gets the house but until the wife signs a deed to him, she will remain on title (but without any beneficial interest in the property). Until there is a deed, typical county records, tax assessors and title company summaries don't dig into the terms of the divorce judgment (which probably isn't recorded anyway).
Once a deed is executed from one spouse to the other, the grantor spouse will be removed from title. However, she will still be on the deed of trust and show up in foreclosure paperwork because a trustor (borrower) under a deed of trust is never removed from title unless the beneficiary (lender) releases them.
If you are keeping a house, check with your lender to see if they will do a Name Delete Assumption.
Bottom line: You may need an attorney to review the judgment and clean up title.
The Clock Is Ticking.
The quicker you act, the better your options are. And the good news is you have already taken the first step. You are looking for the information that will help you change your situation. Take a look at my website. Go through the reports. Write down your questions and then contact me today and schedule your free, confidential consultation.
Previous Posts In The Series on The Top Ten Short Sale Questions Asked By Houston & Spring TX Sellers:
Question #4: How Will A Short Sale Affect My Taxes?
Question #3: How Does A Short Sale Affect My Credit?
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