Home Foreclosure Injunctions
by Wes Cowell; updated 19 June 2015 -- suggest a corretion
If you're facing a divorce and a foreclosure at the same time, it's still possible to keep the house. At the very least, the divorce can help delay a foreclosure judgment and extend your occupancy. Need advice? Call, leave your info., or scheduleschedule a consult.
It's not uncommon to have a home foreclosure running in conjunction with a divorce case. Whether the mortgage is in the name of one or both spouses, if the debt is marital in character, it must be dealt with in the divorce. Fortunately, if your spouse will cooperate, your options are as robust as if you remained married:
Enjoin the Foreclosure: For starters, bring the lender into the divorce as a third party. Much like a bankruptcy proceeding, the court has power over the assets of the marriage. The court is charged with the responsibility of preserving the marital estate. It's not hard to obtain a temporary injunction against a mortgage lender to stop a foreclosure dad in its tracks.
Sell the Home: If neither spouse wants the home, and the home has positive equity, sell as soon as possible. Get the debt off the table.
Short Sale: If the home is under water (negative equity -- you owe more than you can sell it for) you'll only be able to sell it if you can come up with the money to pay off the shortfall against the mortgage (mortgage balance - sale proceeds = shortfall). In these cases, we need to work with the lender to let them know that a divorce is going on, there isn't enough money to go around, and try to pressure the lender into cooperating on a "short sale" or a "deed in lieu of foreclosure."
In a short sale, with the lender's permission, the home is sold for less than the mortgage balance and the deficiency is forgiven. In some cases the deficiency is NOT forgiven and the borrower(s) (one or both of the divorcing spouses) remain liable for the deficiency and it is paid off over time.
Deed In Lieu: A "deed in lieu" is where you simply give the house to the lender by signing over the deed in place of of the lender filing a foreclosure action to get the deed. Again, sometimes the lender will want to recover the deficiency (the fair market value of the home and the mortgage balance at the time of the agreement. Work with an attorney to ensure the "deed in lieu" agreement protects you from a deficiency judgment. If the agreement isn't adequate, the lender will take the house, say "thank you," and will then file a lawsuit against you (and/or your spouse) to obtain a judgment for the deficiency.
Rent It: This option carries a lot of risk and demands a lot of work and cooperation. If you think you and your ex can work together, it might help save a lot of money. Call my office so we can prepare a solid agreement in the divorce court that will lay out who will do the credit checks, rent the place, collect the rent, pay the mortgage, taxes, insurance, handle the maintenance and upkeep, etc. A bad agreement will spell disaster.
Mortgage Assumption: If you want to try to keep one spouse in the home, that spouse can assume the mortgage and be responsible for repaying it. When a home sells, a clause in the mortgage -- the "due-on-sale" clause -- requires the mortgage to be paid off entireley at the time of the sale to the new owners. It is for this reason that a buyer cannot simply assume a mortgage from a seller.
In a divorce case, however, the Garn - St. Germain law (12 U.S.C. Sec. 1701 et seq.), says the lender cannot enforce the due-on-sale clause between spouses and one spouse may assume the mortgage from the other spouse (or take it on solo from the couple) . . . even if the mortgage is in default. Call my office ot learn more.
Refinance: If one spouse has adequate assets and credit, the mortgage may be refinanced. This is, essentially, taking out a new mortgage and paying off the old
Loan Modification: If the spouse wishing to keep the home lacks assets and credit, a loan modificaiton might be a possibility. A modificaiton permanently restructures the mortgage (by reducing the in interest rate, converting the interest from variable to fixed, and/or extending the repayment term) to make it more affordable.