Getting out from under your home mortgage is a big deal if you’re in the process of divorcing. What was once a wonderful love nest for two has become an impediment of major proportions when you decide to split. Mortgage experts say there are several points to consider when deciding what to do with your home when faced with a divorce in difficult real estate market like the one that exists today. Among them:1. Decide who, if anyone, can afford to keep the house.
Greg McBride, senior analyst at Bankrate.com
, said first you need to decide who, if either of you, wants to stay in the marital home and if they will be able to qualify for a loan on their own based on their individual income and assets. According to Joan Iacono, a divorce and real estate attorney n Bronxville, N.Y., one spouse could buy the other out if they had enough equity in the home. Ernie Sturges, a Port Charlotte, Fla.-based real estate attorney with Goldman, Tiseo and Sturges
, said any agreement should be included in your marriage settlement, which the two parties can work out in mediation, through their attorneys or in a courtroom.
2. If one party can afford the house, take the other person's name off the deed and the mortgage.
If one party can afford the house, he or she should refinance it in his or her own name. That way their former spouse can be removed from the loan a be free and clear, McBride said. Baker Cunningham, who has spent almost two decades in the mortgage business in Little Rock, Ark., cautioned: “There’s not a loan out there that can sufficiently reduce the numbers on your mortgage to allow a person to refinance their home and pay for it on their own if they bought it in the last five years or so. However, if you can afford the payments and want to keep the home, what you should do is get the house refinanced and take the ex-spouse off the note.”
Mike Dunklee, a media relations spokesman for Quicken Loans
, pointed to his firm's help guides on divorce, “Managing Your Finances During a Divorce.” A tip in the guide suggests homeowners who are getting out of a home in a divorce to be certain of the name on title to the property and on the mortgage loan itself. 3. If neither one of you can afford your house alone, sell it.
It's the prudent thing to do is to sell the house, McBride said. Cunningham said the sooner the house is on the market, the better off you'll be. While awaiting the sale, Quicken's help guides state: "...Be sure and continue making the payments while the house is on the market to maintain good credit." 4. If you can't afford the payments, consider a short sale.
If you get into a tough spot trying to pay the mortgage and foreclosure is a possibility, you may have to consider a short sale of the property
to expedite the process. “If a couple knows they’re going to have trouble..., they need to get in touch with the lender right away. Communications with the lender is one of the most important things a person with a home mortgage can do," Cunningham said.
A short sale is an agreement with your bank or mortgage lender and it agrees to the sale of the house for less than your mortgage. Iacono said neither party walks away with any money. “In some cases a lender may go along with a couple doing a ‘Short Sale’ and not hold the borrower responsible for any losses. A person’s credit condition has a lot to do with if they’re going to fool with the loan or not,” Cunningham said.
A couple with good credit, up the point they went through a divorce, is much more likely to get a banker or a mortgage company to consider their situation favorably than a couple with poor credit. “If the person with the mortgage problems doesn’t talk to his lender they can’t be offered a ‘Short Sale’ or some other possibility,” Cunningham said. “
McBride said the best that a homeowner can do in a short sale is get out of the loan with a ‘Not Paid as Agreed' notation, which could reduce your credit score for the next few years, but it’s a lot better than having a foreclosure on your record. A foreclosure will ruin your credit for seven years, Iacono said. With a short sale, "You will be free and clear of the property, provided you work out a satisfaction of mortgage agreement with the bank before the sale," McBride said. Sturges said his job is to "work with your lender to obtain a satisfaction of mortgage, if there are sufficient proceeds from a short sale of the property," Sturges said. 5. Avoid foreclosure.
Whatever you do, experts don't recommend you and your ex walk away from your home and mortgage. “No judge I know will sign off on a divorce if you tell him you have substantial debt on a mortgage and you plan to walk away from it,” Iacono said. If you do walk away, the property will go into foreclosure, like tens of thousands of other homes around the country. “That ruins your credit rating
for the next seven years. And the lender can go after you and your ex legally for the remaining balances on the note,” McBride said. 6. Bankruptcy as a final option.
If the bank does not want to extend to you the possibility of a short sale, Iacono said bankruptcy could be an option. In that case, you let your ex walk away from the house, assume the mortgage in a divorce and then file for bankruptcy after you’re divorced. Sometimes, she said, you may be able to renegotiate with the bank at that time. TO READ MORE
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Don Moore is a veteran newspaper editor and reporter who spent more than 40 years working at newspapers around Florida. He recently retired from the Port Charlotte, Fla., Sun-Herald. He can be reached at email@example.com