The chances of a real property buyout in divorce cases has become less possible now than it has since the market crash of 2008, thanks to interest rate hikes coupled with high home values. In fact, The Fed met again and left interest rates unchanged for the sixth straight session. 

Because it is simply not feasible for many divorcing homeowners to qualify for a buyout mortgage, the trend of deferring the sale is increasing — along with the trends of remaining on a joint mortgage and joint title with their ex. 

The reality is: It may be better for the family, including the children, to remain in the family home for some time after the divorce, yet the liability of remaining on joint title and joint mortgage poses significant risks that should be discussed before agreeing to it. 

While it is impossible to predict all the scenarios that can come up, here is a sampling of some of the more common issues we’ve seen as real estate professionals, and clients should be aware of them: 

Joint Title

• Liens or Judgments: Titled owners are at risk of creditors encumbering real property. Consider that one of the spouse’s debts could force a sale or substantially decrease the equity.
• Bankruptcy: If either party files bankruptcy and includes the real property, it could muck up the salability or refinanceability.
• Liability: From injury-accidents that occur on a property to a tree falling in a neighbor’s yard, there is liability of being a titled homeowner. What if a friend’s child drowns in a pool or trees cause damage to neighboring property? Whether the out-spouse is liable or not doesn’t prevent them from being dragged into a lawsuit as a titled owner.
• Encumbering the Property: Either legal owner could use the property as collateral — this can be anything from gambling debts to SBA loans.
• Leases: Should the property be leased, tenant rights could apply. If the property is to be sold on a certain date but it’s been leased (or roommates have moved in), the sale could be in jeopardy.
• Incapacitation: If a titled homeowner becomes incapacitated without a property Power of Attorney in place, then disposing of the asset becomes complex and delayed.
• Death: This can get complicated. Depending on vesting and the state laws where the property is located, a decedent's share could be passed to the surviving party — or to their heirs, thereby establishing ownership between them and the surviving party. Alternatively, without a will, their share may need to be probated and the surviving party may not be entitled to all proceeds (again, depending on state laws). In the event of remarriage by either spouse, the surviving party could essentially become a joint owner with their ex’s new spouse! And these are just some of the potential scenarios if left unaddressed.

Joint Mortgage

Perhaps the most common risk of deferring the sale is remaining on a joint mortgage. 

• Credit: Any default, such as mortgage lates by 30+ days, a loan modification, or foreclosure activity, will cause all parties on the mortgage to be impacted with credit damage. It is a tough day for an out-spouse who is in the midst of buying a house to learn that their loan is denied because their ex missed a house payment.
• Deficiency judgments: Should the property foreclose, depending on the loan structure and statutes governing deficiency recovery, this could haunt an uninformed out-spouse. 

When your clients wish to defer the sale of the home, consider disclosing the risks in doing so. They should not turn a blind eye to the mortgage if they are still on it and payments are in the hands of the other party. Urge them to stay in touch with the mortgage company on a regular basis to ensure payments are made on time as well as regularly checking their credit report. 

Lastly, when we are called in to list a property post-judgment, we sometimes see vague terms that either are not specific or omit when a buyout or a sale should take place, how the listing agent is chosen, who is responsible for the property should it become vacant (including mortgage payments, upkeep, and utilities), and how proceeds are divided. This can leave the door open to costly issues and delays.

If you or your clients have any other questions regarding their property or would like more information, please do not hesitate to contact me or pass my number along to them!

Until next time!