Divorce vs. Foreclosure

DISCLAIMER: I am not an attorney. The information provided is based solely on my experience as a seasoned Real Estate Broker who has closed a few hundred Short Sales.

One of the most contentious areas of dealing with divorced couples who are facing foreclosure is the term severalty. When a married couple purchases a home with financing and both parties are on the loan, the Lender takes the position of severalty meaning both are equally and individually responsible for the entire loan. I often have ex-spouses break down emotionally when they find out that they are still on the hook for the loan payment regardless of what the court ordered the other party to do as part of their divorce decree.

For example ... Party A and Party B have irreconcilable differences and decide to get divorced. Party A and Party B purchased a house together while married and both are on the loan. Its determined that there is no equity in the house. Their divorce decree stipulates that Party A will retain possession of the Property (house), however, Party A is ordered to refinance the Property within a certain period of time putting the Property in Party A's name only. Party B quit claims their ownership of the Property to Party A and figures they are done with Party A and can get on with their life. Guess what? Both parties often face financial hardships as a result of the divorce because they purchased the property based on two incomes and now they are faced with living on their own again and each with their own housing expenses. Party A eventually falls behind on payments and often does not inform Party B. Party B discovers that they cannot get a loan for a car because their credit is now damaged or Party B receives a court summons of foreclosure and wonders how this could have possibly happened. The first response of Party B is denial that they would be affected by the foreclosure law suit because the Property was settled as part of the divorce?

 

Severalty is a difficult concept for many people to grasp especially when they have a divorce decree that clearly states the responsibilities of the ex-spouse. Just as you may take someone to court and get a monetary judgment against them, now try to collect. Its not always an easy task. I’m told that same applies with a divorce decree. Party B would have to take Party A to court and try to hold them in contempt but if Party A doesn’t have the financial resources, it’s the proverbial trying to get blood from a turnip scenario.

The only time I’ve had success in getting an ex-spouse released from a mortgage debt obligation is if all three of the following conditions apply to the ex-spouse: divorce, quit claim deed and bankruptcy.
This type of divorce situation is where I’m often called upon by other Real Estate Brokers or Attorneys to assist their clients in selling the Property as a Short Sale. A Short Sale is where we negotiate with the Mortgage Lien Holder (Lender) and any other Creditors to accept less than what they are owed and settle with the Debtors (Sellers/Borrowers). A successful Short Sale is where the Debtors are released from the mortgage debt obligation without owing any money at closing of the Property.

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