QUESTION: My spouse and I own a home that’s in foreclosure, and we owe more money than the house is worth. We’re divorcing and I’m wondering if I’m going to be responsible for 50% of the difference between what the house sells for and what we owe or if that all goes away due to the foreclosure?

Do you owe more on your home than it is worth? If so, you have an upside down home mortgage.  This means that even if you sell your home, you will still owe money on it.

If you want to keep living in your home and can afford your mortgage on your own, an upside down mortgage may not be a serious factor in your divorce. But, it can be a problem if neither you nor your spouse can afford the mortgage payment on your own. While you may want to walk away and get a fresh start, you are still obligated to pay your debts. It is not unusual for a home to end up in foreclosure as the result of financial hardship from divorce.

Avoiding Foreclosure

Foreclosure can affect your credit score and your ability to buy or rent a new home. It is best if you and your spouse can agree on a solution to avoid foreclosure.

If you can’t come up with a plan, then the court will decide what happens to the home and who is responsible for payments. There are five possible options when neither spouse can afford to keep the home.

  1. Loan modification: You may be able to afford your house payments if you can refinance at a lower interest rate. Or, you may be able to ask your mortgage lender for a change in the terms of your loan. The federal government provides subsidies for some loan modifications
  2. Rent the property: This is an option if you can use the rental payments to pay the mortgage.
  3. Sell the property: You can sell the property to pay off debt. However, if your home is worth less than you owe, you may still end up making payments.
  4. Arrange a short sale: You can ask your lender to consider a short sale. In this case, the bank agrees to accept a lower payment amount.
  5. Completing a deed in lieu of foreclosure: In this case, the lender accepts the deed to the property instead of foreclosing.

It is not uncommon for a home to end up in foreclosure as the result of financial hardship from divorce. Once your home is in foreclosure, the bank will own the property. You will be given notice to move out and the bank will auction it off.

Post-Divorce Foreclosure

If your spouse decides to keep the home, the home should be refinanced in his name only.  If you stay on the loan, you can be held responsible if your ex stops making payments. If the home is repossessed, the foreclosure will affect your credit score.

Your Philadelphia divorce attorney will work with you to protect your assets during and after the divorce. Contact Petrelli Previtera at 215-523-6900 to learn how we can help you.