Divorce is a big upheaval in a person’s life, and if you are facing a home foreclosure at the same time, an already stressful situation becomes that much worse. The big question is: who is responsible for the mortgage debt? Divorce and Foreclosure both require special attention.
To answer this, you would turn back to the original documents. If only one spouse is listed on the loan documents, that spouse is going to be the one responsible for debts. If foreclosure occurs, that spouse will suffer a drop in credit score, while the other spouse will be unaffected.
Typically, though, in marriages, both spouses will have signed the mortgage loan documents. This makes the matter a little more complex. From here, cooperation will be important. It is not impossible to avoid a foreclosure in divorce.
Two Ways You Can Avoid Credit Ramifications and Foreclosure
- If the market value of your home is lower than the total amount owed on your mortgage debt (the home is “underwater”), you can avoid foreclosure through a short sale. A short sale is simply a sale of the home for below market value. You would need to permission of the lender to accept the proceeds of a short sale. Some lenders might forgive the difference; others could come after you and your spouse for a deficiency judgment within six years. You would remain jointly liable, in this case, for the deficiency. You might be able to get the deficiency reduced by bargaining with your lender, or even persuade the lender to accept a lump sum settlement to clear your remaining debts.
- You could also seek a deed in lieu of foreclosure, where you give the title to the home to the lender in exchange for being released from your mortgage obligations. However, like a short sale, it is possible that you and your spouse could be jointly liable for the deficiency. Deficiencies are also negotiable here through either reduced rates or a lump sum payment.
Contact an Expert Divorce Attorney in Denver for Help Today
Divorce isn’t easy, and neither is foreclosure; to deal with both at the same time takes a lot of effort. Don’t be afraid to ask for help when dealing with these matters.