Six to ten years ago, nearly every divorce in which the couple owned a house provided the couple some equity value to divide. The house was an asset, and the spouses could sell the house, and divide the proceeds; or one of the spouses would buy out the other spouse’s interest in the house. In the latter case, one spouse would be given a financial settlement for the asset he or she would be leaving behind.
Then there was a housing bust that caused scores of foreclosures and short sales. Many economists believe that we may be climbing out of that hole, and the housing market is improving. But that does not change the reality for many divorcing couples that their house has value at or below the balance owed on their mortgage.
In the case of a house with negative equity, if one spouse leaves the house behind, the other spouse is left, not with an asset, but with a liability. The spouse left with the liability may believe that the departing spouse should pay something towards the debt on the house. The problem with that idea is that the house may end up in foreclosure, or a short sale, or the spouse who stays in the house may be able to negotiate with the bank on the mortgage. In other words, the spouse who stays may not end up realizing the entire “negative value,” so to receive from the departing spouse a “full accounting” of the negative value may result in something of a windfall to the spouse who stays.
Moreover, if the couple has children, one spouse may stay in the house to avoid, or delay, the children’s move to another house. In so doing, that spouse derives intangible benefit, essentially an unquantifiable value, from remaining in the house – particularly if that spouse is able to negotiate with the bank, and is able ultimately to remain in the house, with the children, indefinitely.
The most common practice is to treat the “underwater” house as a “zero asset.” The departing spouse is incurring the expense of renting, which offsets the expense to the remaining spouse to continue to make payments on the mortgage. In the case of a home with a larger mortgage payment, the remaining spouse may leave the house after the expiration of the mortgage redemption period, without putting any additional money into the home. Either way, assigning a zero value to the house is often found to be the fairest resolution.
If I may ask for clarification on this posting: are you inferring that a marriage dissolution would outright remove the liability of a party from a mortgage? I am unfortunately just wading into the waters of divorce, but had always operated under the impression the mortgage company would have to approve the removal of a party from the loan. This is problematic, because my (ex)wife misses the calculated income level to assume the mortgage outright by about $2000 a year (so she can very realistically afford the loan on her own, just not in the eyes of the underwriters). I’d rather not continue to live with someone whom does not wish to live with me until a short sale can be processed, so if the dissolution can allow for the house to be retained by my wife while insuring that I have 0 liability to the debt, that would solve the #1 problem I have. Thanks for your knowledge on the topic, your postings are quite informative!
Here’s the skinny, Spouse left martial house in 2011 and moved back into her separate house . Martial property is 12,000 underwater. I continue to pay mortgage by myself. Spouse contributed monterarily for ten years while staying in martial property. I cannot buy her out and I want too keep the home. Spouse is on Deed only. What can I do???
My husband and I own a manufactured home that was appraised at 45,000….unfortunately mobile homes dont have any equity…Weve been seperated for over a year, Im still on all the paperwork. He resides there and chooses not to sell it.. I rent an apt in a nearby town. Finances are challenging for me…How can I benefit financially from this home ? Just sign off and ask him for money ? Thats it ? No other legal ideas ?
My husband and I are separating, we’ve only been in our home for 5 months. Our plan is to sell, is it best not to let buyers know we are separating? And, will.we lose money selling so soon
Yes. Best not to let the buyers know. And whether you will lose money or not will be based on the market. It would be good to consult with a Realtor to determine the outlook.
My ex husband is trying to sue me for half the NO equity in our home after being divorced for 11 years and the house going to Sheriff sale in 2017.
I solely lived in the former marital home w/ our two children and paid it by myself for 8 years until I couldn’t take it anymore and was DROWNING.
Tried a short sale but it fell through.
There is NO EQUITY in the home (I didn’t pay the mortgage for almost two years and when initially bought the home, ONLY I put the $12K down payment money down . . . we also had two refi’s over the years – each getting a car) .
Is he just trying to rattle me by using smoke and mirrors?
Is there any validity to his threat?
My anxiety is getting the best of me as the Court date approaches, but I truly don’t think he has a leg to stand on – you can’t get blood from a stone!!!!
I suspect that you have stated it correctly to say that you can’t get blood from a stone. Half of zero is zero. So suing you for half of the equity in a house with no equity will not pay off.
Also, since the divorce was 11 years ago, he would be invoking provisions from the marital settlement terms in the divorce decree, because he would not be able to raise that issue now, past the point when the court signed the decree.