Divorce And Foreclosure - Is A Divorce A Costly Mistake
When spouses finally decide it's time to part ways, they often think about divorce and foreclosure. But many don't realize that in some cases, divorce and foreclosure can occur simultaneously. In other words, a couple may have decided to end their marriage but have yet to officially divorce. If this is the case, then the sooner they'll be able to separate is the court date--which inevitably involves an expensive settlement. Here are some details regarding how this sort of divorce and foreclosure can play out.
The laws governing divorce and foreclosure vary tremendously from state to state, so you must be aware of the laws where you live before moving forward. In most states, a spouse who wants to stop the divorce and prevent the foreclosure proceedings has to submit to a lender an application for a loan modification. Essentially, the spouse must prove that they can no longer afford to make the payments on the mortgage, so a loan modification can be the solution to the problem.
A loan modification can also be useful if the two parties are no longer able to agree on any terms relating to the divorce. For instance, if the two parties have a verbal agreement about child custody, visitation, alimony, or other key issues, then it might not be helpful to file for divorce. (And it's not even necessary to file for divorce if the parties can't come to a "compromise" about the mortgage.) If the former spouse has filed for bankruptcy protection, then the lender may be unwilling to go through with the modification, since it means that the debtor will be completely discharged from any obligation to make mortgage payments.
However, if the spouse does have property jointly repossessed, and the property has been turned over to the creditors, then the spouse may not be able to stop foreclosure. Once the lender takes the house back through a foreclosure auction, the spouse simply loses the ownership of the home and the right to live in it. This doesn't mean that the spouse can't try to get back on track with their mortgage payments, though. A short sale may be an option, where the bank sells the home for less than is owed on the mortgage. And if the bank files for bankruptcy protection against the debtor, then the spouse will not be personally liable for those debts.
A third way to avoid the necessity of a divorce and foreclosure, when both spouses are still legally married, is to agree to stop making the mortgage payments. In most states, this means that the married couples are going to have to stop living in the home. It may not be an easy solution for the husband or wife who will pay mortgage in divorce continues to earn a substantial income, but it's a solution that exists. And even if the person getting divorced isn't earning as much as he used to, he or she should be able to qualify for assistance from the government that goes toward mortgage payments.
The economy has changed dramatically over the past few years. Home values have plummeted, and many people who had mortgages are now unable to make the payments. As the recession lingers, the possibility of a divorce and foreclosure is more likely. While some couples see this as a positive because it allows them time to sell their home and move on, others view it as a final opportunity to collect on the mortgage that was supposed to provide for their family. When the economy improves, hopefully these problems will be behind us.