Many of our clients here at Reid Real Estate Group are in the process of a divorce or have already divorced but still own property together. Often the family home needs to be sold during this difficult and emotional time, which becomes even more complicated when the home is worth less than what is owed on it.
5 things to consider when divorcing and upside down in your home loans:
A quitclaim deed will transfer the ownership interest but does nothing to affect the responsibility for the mortgage: This is by far the most misunderstood concept in the divorces I see. Even if one party quitclaims their interest to the other, if both were on the loan, both will remain on the loan! Any future defaults will affect both parties, and if a short sale comes into play both will need to cooperate.
When upside down in the home, the best time to address this is now: It is certainly an emotional time and it is inconvenient to deal with short sale in the middle of a divorce. However once one party has moved out and time has passed, it is much more difficult to coordinate a short sale as both parties must be involved. Generally the party having moved on is much less vested in the outcome, particularly if they have filed bankruptcy. This may leave the other party holding the bag and unable to do any workout with their lender, leading to devastating consequences such as foreclosure.
If you are the one considering moving out and leaving the home to the other, rather than selling it now: Keep in mind the mortgage responsibility will remain and this may make it difficult for you to purchase another home. You may never be able to buy until you have gotten out from under the existing mortgage.
A loan modification may not be the answer: The common thought is that if the payment were just lower, one party could afford to stay and pay for the home on their own. While this may be true – a loan modification will NOT remove anyone’s responsibility to pay, leaving both parties on the mortgage even despite a more affordable payment.
Moving out may become an issue: Most of the time, one or even both parties are in the process of moving out of the shared home. It is very important to time this properly especially in a pending short sale situation as some lenders will in fact deny a workout if the home has been vacated.
Before moving out of a home you may want to short sell, it’s always best to ASK THE PROFESSIONALS FIRST!