The Family Home and Divorce – Options for When You Owe More Than Your Home is Worth

 Posted on April 25, 2017 in Divorce

Illinois divorce lawyersOf all the assets that a couple owns, the family home is often the most valuable. Unfortunately, the recent recession and nation’s lagging recovery has left many homeowners upside down in their mortgages. This can result in significant issues for couples going through a divorce. Thankfully, there are still options. Learn more with help from the following information on how to deal with the family home in divorce if you owe more than what it is worth.

Deed and Title Transfer “Buy-Out”

One way to deal with an underwater mortgage in divorce is for one spouse to essentially “buy out” the other. This means that the spouse who keeps the home would pay the other spouse their portion of the home equity through other marital assets. This does come with its advantages for both parties, but there are also some disadvantages to consider. For example, the deed and title transfer may not have an impact on the mortgage; if the spouse that keeps the home defaults, then both parties could still be held liable. Further, the spouse who keeps the home will have fewer liquid assets after the divorce, and the one who takes the buy-out will have less in assets.

Refinancing the Home

Another possible option is to refinance the home. The part keeping the home would still need to “buy out” their spouse to maintain the home, but they might have better terms on their mortgage. Further, a refinancing generally removes the buy-out spouse from the mortgage, which can effectively cut ties and concerns over defaults and any future sale of the house.

Unfortunately, refinancing a home is not always as easy as it sounds. The party keeping the home must have enough credit and income to stand on their own in the mortgage. Further, there could be penalties and fees associated with the refinancing of the home. Before choosing this option, ensure you take the time to weigh out the pros and cons.

Rent the Home Out

If neither of you wants the home but you would like to wait to sell it until the market improves, renting the home out could be a viable option. Of course, renting comes with its own slew of complications. First, it is highly recommended that you use a real estate management company who can screen possible applicants and reduce your risk of a bad renter; doing this comes with a price. Second, there are no guarantees that you will not experience a nightmare of a tenant who either skips out on their lease or destroys your home and further decreases its value. Weigh your pros and cons carefully here to decide if this truly is the right option for you.

Short Sale or Foreclosure

If neither party wants to keep the home, and both want to walk away without concerns over a mortgage or renters, the best option may be to either short sell the home or let it go into foreclosure. Be aware that both options can take time, both will impact your credit, and both slow the process of your divorce. However, a short sale (whenever possible) is often less burdensome and time-consuming than foreclosure. You could also opt for a deed-in-lieu, which is a little like a short sale or foreclosure in the way that it impacts your credit, but you would not have to wait for the process to finish before completing your divorce. Before moving forward with any of these options, talk with your attorney about the potential drawbacks.

Contact Our DuPage County Divorce Lawyers

Whatever your challenges may be in divorce, J. Aldrich Law, P.C. can help. Learn more by scheduling a personalized consultation with our DuPage County divorce lawyers. Call 630-953-3000 today.


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