Facing Foreclosure During a Divorce
Struggling to make ends meet puts a strain on the best of relationships, and if it lasts for a considerable period of time and/or is extreme, overcoming this challenge may prove more than a couple can bear. Marital assets and debts must be divided in divorce, and when finances start to break down, the ramifications can reach all the way to the possible loss of a home through foreclosure. Navigating the divorce process is hard enough in straightforward circumstances, but it can become quite complicated when an active foreclosure is being sought, because the mortgage lender has a legitimate interest in how this asset is divided. This situation may be further complicated if one spouse wants to attempt to save the home and assume sole possessory rights and ownership.
In an unusual case, an Illinois appeals court upheld a default judgment that terminated the interest of a divorcing couple’s mortgage lender in the marital home, which was in the middle of a foreclosure, because it failed to respond to a complaint by the husband challenging its validity. While uncommon, this case highlights how intertwined a divorce and a foreclosure can be.
Who Is Responsible for the Debt?
Financing the purchase of a home involves the legal assumption of the obligation to repay a promissory note, the contract that outlines how long and how much the buyer must pay to satisfy the loan. In addition, a lien is placed on the property, which gives the lender the right to repossess the property in the event of default. Most couples jointly sign these documents, making both spouses liable to meet the terms or face foreclosure.
As with other joint debt, regardless of which spouse assumes liability, the creditor still retains the right to pursue repayment from both spouses. Thus, if both spouses are listed on the mortgage, both remain responsible for any deficiency judgment (the amount still outstanding on the note after the home is sold at auction) related to the foreclosure. On the other hand, if just one spouse is listed on these documents, he or she will be solely responsible for the debt and any resulting liability related to a foreclosure.
Options for Settling the Division of the Home
The options available for dividing the home in divorce principally rest on the desire of the spouses to either keep or dispose of the property. If one spouse wants to keep the home, and both are listed as responsible for the mortgage, the party keeping the home will need to either assume the mortgage or seek to refinance the loan. Banks will typically allow a person to assume a debt due under the terms of the contract; however, if the second spouse remains on the loan, he or she will remain legally responsible, regardless of what the divorce decree says. If neither spouse wants to keep the home, the typical options are:
- Sell the home and use the proceeds to pay the debt; however, this choice may not work well in a foreclosure situation.
- Rent the home and use the income to pay the mortgage.
- Obtain lender agreement for a short sale.
- Deed the home to the bank to release the title and avoid foreclosure.
The right option in the cases of foreclosure will depend on the individual circumstances, but it is important to talk to an experienced attorney to ensure any liability is fully released in a divorce agreement.
Contact a Mt. Prospect Divorce Lawyer
Divorce requires couples to absorb many changes to their lives and finances within a short period of time. If you have questions about how divorce will affect your financial situation, or another related issue, talk to an experienced divorce attorney about your concerns. Dedicated Hoffman Estates family law attorney Nicholas W. Richardson understands the pressures you are facing, and he will work to help you obtain the best possible outcome. Call our law firm today at 847.873.6741 for a free initial consultation.