Mortgage Crisis and Divorce

Clients who are in the middle of divorce proceedings tend to respond to the emotional upheaval by spending more money during shopping sprees for nonessential items, Francis said. “It is one of the most traumatic times in your life,” Francis said. “One of the ways people deal with that is spending therapy. Deep down inside they have this unbelievable wound.”            

For those people, financial counseling can help redirect their spending to the essentials in their lives, she said. “The number one place people need to be paying their money is paying down their mortgages,” Francis said. “Food is right there, too, and the basics of clothing.”            

And if it seems as if foreclosure is on the horizon, then they must consider selling their homes, Francis said. It is one of the most difficult decisions a divorcing couple may have to make, she said, but it may be unavoidable. “If it’s bad now, what’s it going to be like for you in a few years? I think that’s a real frank discussion that you need to have. A hard one, but a frank one,” Francis said. “People like to keep the home, and you have to make sure you truly can afford it.”  


SELLING A HOME TO AVOID FORECLOSURE              

For couples who find they can’t afford their mortgages either together or alone, selling is probably the best solution, said Linda Leitz, a certified divorce financial analyst with Divorce Solutions, Inc., in Colorado Springs, Colo. She said she often sees couples in which one spouse wants to keep the house, and needs help doing so, and the other wants to sell the house and get out from under the mortgage. She said the question becomes: Which spouse will bear the heaviest burden and take on an overwhelming mortgage? “Both people have to share the asset and share the pain,” Leitz said.            

She said she is conflicted about the proposed legislation because she doesn’t want to see couples financially ruined by their mortgages, but then she also wants people to take responsibility for the financial straits in which they find themselves. So when divorcing couples are facing the difficult decision about whether to try to save the house or cut their losses, Leitz said, she said the only answer may be to sell.  

“I think if they are concerned about it, they may need to do what is considered the worst case scenario for many of them, which is to sell the house right now,” Leitz said. “If they can’t agree on how to share that burden, that that’s what they are going to need to do.”


TOO LATE FOR DIVORCING COUPLES              

The proposed package may not even be relevant to divorcing couples, said Rita Medaglio-Barrera, a certified divorce financial analyst and collaborative divorce financial specialist with Paragon Divorce Management, LLC in Smithtown, N.Y. “I don’t think that its going to do much for couples that are in a house that is currently foreclosed,” Medaglio-Barrera said. “That package is really helping the builders, more than the consumers. I don’t see it impacting divorcing couples.”            

She foresees the housing rescue package becoming an issue to couples after they have completed their divorce settlements, they have sold their joint home, and they are looking to buy homes on their own. After the divorcing couples have waded through their own debts, when they have split their equities, then they will be considering buying or renting their own homes. She said the lower housing costs, especially the costs of homes nearing foreclosure, will become an asset at that point.            

But during that process, Medaglio-Barrera said, the Foreclosure Prevention Act will not offer much assistance. “It’s unfortunate that it won’t be helping as many people as it should,” Medaglio-Barrera said.   


TO READ MORE

Click here to read more about the mortgage crisis causing divorce.

Click here to read more about short sales to avoid foreclosure.

Click here to read a more about tips to help when you can't pay your mortgage.

Click here to read a column by a consumer credit counseling service about what to do when you can't pay your mortgage.


Michele Bush Kimball has a Ph.D. in mass communication with a specialization in media law. She has spent almost 15 years in the field of journalism, and she teaches at American University in Washington, D.C. She recently won a national research award for her work.