Drowning In Your Marital Home
By Certified Credit Counsellor, Suzanne Cramer
I recently had lunch with a friend who has filed for divorce and is struggling with what to do with their marital home.
Their situation is like many today who are faced with selling the marital home after a divorce and for various reasons, market conditions, location, and lack of cooperation from their soon to be ex, the experience has been exhausting.
Deciding to sell your marital home is a difficult choice for many; you may have built the home, raised your children there, and most importantly created memories that are hard to say good bye too.
Even after making the difficult decision to part with the home in some cases it isn’t even possible without facing huge hurdles and financial strain.
In my friend’s situation the couple built their home with the intention of staying there “forever”. As with their marriage staying in the home is not a “forever” reality for either one of them. The problems began when they listed their home for sale last spring and received not even a nibble on their asking price.
With the advice of their realtor they agreed to drop the price low enough for them to just “breakeven”. All of the work, effort and memories resolved to “breaking even”. Difficult as it may be, the divorce is in process and both are forced to live in the home with their small child leading separate but together lives.
The situation as they describe it, is awkward at best and difficult to maneuver daily living under one roof with their soon to be ex. So I decided to do some research to see what advice I could offer for this increasingly popular problem in today’s economy and tough real estate market.
One of you gets to stay…for a price
When faced with a tough market and slumped economy maybe the answer is for one of you to try to keep the home. There are several factors to be considered with this decision:
- Will either of you qualify for a loan on your own based on your individual income and assets.
- Can the spouse attempting to keep the home afford to “buy out” the other spouse?
- If you decide to stay can you afford the mortgage and upkeep? (think maintenance, lawn care, utilities)
Make it official…
If you plan to stay you want to make it official and have your ex’s name removed from the deed and the mortgage. The only way to make that happen is to refinance the home in your name alone, leaving the other spouse free and clear of financial obligation to the home.
Sell it…if you can
Selling the home may not be your first choice, but in many cases it’s just not possible for either of you to keep the home. If you plan to sell keep the following in mind:
- Once you come to an agreement to sell the home, get it on the market right away. Time is of the essence.
- Continue making monthly mortgage payments to avoid damaging either of your credit ratings. You may need to use your credit following the divorce to purchase a new home, rent an apartment, or buy a car so don’t shoot yourself in the foot by damaging your credit.
Consider a short-sale
Consulting your realtor about asking price and market conditions can give you a better idea of where you stand with regards to actually selling your home and not losing your shirt. If you find after a short period of time the likelihood of selling your home is slim you may consider a short sale to avoid possible foreclosure and extensive damage to your credit rating. A short sale is an agreement with your bank or mortgage lender and it agrees to the sale of the house for less than you owe on your mortgage. If you are considering a short sale keep the below in mind:
- Make sure you are in constant communication with your lender.
- While a short-sale may have short-term credit affects the damage is not as great as with foreclosure, which remains on your credit for seven years, or even worse bankruptcy.
- Your short-sale may be contingent upon the state of your credit rating prior to the divorce so be prepared for pushback if you and your ex have less than stellar credit.
Avoid foreclosure and bankruptcy
Throwing in the towel with an underwater mortgage may seem like your only way out, but should be avoided at all costs for several reasons:
- You may not be able to complete your divorce by having a judge sign off if you have substantial debt such as a mortgage you plan to walk away from.
- The mortgage lender may come after both you and your ex for the remaining balance on the loan.
- The affect to your credit is far more damaging than with a short-sale and your decision may haunt you for the next seven to ten years; leaving you with substantial financial strain.
Deciding to end a marriage is one of the most difficult decisions to make couple that with trying to sell a home and the emotional and financial strain may seem unbearable. Explore all of your options and don’t make rash decisions just to get it over with. Do what makes the most sense for you, and your ex whether it be trying to stay until you can sell, opting for a short-sale, or filing bankruptcy if you have to.
Everyone’s situation is different but keep in mind your decisions may affect you long after the ink has dried on your divorce papers.
Suzanne Cramer is a certified credit counselor working in CareOne’s Ask the Expert forums as a coach and a Social Media Specialist for CareOne. Suzanne writes for Divorce, Debt and Finances and A Straight Talk on Debt blogs. Ask her questions, share your story or just follow Suzanne on her journey as she navigates dealing with divorce, debt, and finances. Suzanne is also very active on Twitter and manages two CareOne accounts: ADivorcedMom and Ask CareOne where she shares the latest debt industry news and tips to keep your finances in check.