Cooperation Essential as Divorcing Couples Face Foreclosure

​Dividing up the equity in their house used to be a fairly straightforward activity for many couples in a divorce. The house was often their major asset, and the question typically was two-fold: Which spouse gets the house, and how much property does the other spouse in exchange for giving up his or her interest in such a valuable asset.

The slide in the real estate market in recent years has reshaped that old scenario considerably. In many cases today, the house is viewed not as an asset, but as a liability. In this new environment, property division issues have become much more complicated. One part of this new reality is the possibility of foreclosure for couples who are behind on the mortgage.

If one spouse remains in a home while the other spouse lives elsewhere but contributes to the home’s upkeep, it is important to not let resentment lead to late payments. If one spouse cannot make the house payments on time while waiting for the other spouse to make his or her contribution, it would reflect poorly on both spouses’ credit reports. If the situation continues, it could lead to foreclosure, which would be an even worse hit on both spouses’ credit ratings.

One option when facing both divorce and possible foreclosure is for one spouse to buy out the other and refinance the house in his or her name. If this is not possible, couples may look into renting the house and using the rent payments to pay the mortgage.

For divorcing or divorced couples who are already facing foreclosure, cooperation is even more important. One possible way to avoid foreclosure is a short sale, in which the bank agrees to accept a sale at a price lower than the value of the mortgage. But both spouses have to cooperate to do this. If one spouse is reluctant to sell – out of spite, a reluctance to move out, or to avoid losing a tangible symbol of the marriage – it could mean entering foreclosure and losing the house anyway.

If a sale is in some way contingent on the divorce settlement (which may not happen according to the buyer’s preferred schedule), the buyer may ask the selling couple to agree to some sort of extra language in the contract of sale. Often buyers are selling their own homes in preparation of moving. Such buyers must have assurances that the sale will go through, or they will pull out of the deal – or sue for breach of contract. This would add additional legal hassles (and expense) at the worst possible time, so it’s very important that couples work together on this, so that their separation goes as smoothly as possible.

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