How Can I Buyout a Community Property House in my Divorce?
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.
Often it is simply not feasible for divorcing homeowners to qualify for a buyout mortgage. One solution may be to defer the sale of a community home until the market changes.
Another possible solution is to remain jointly on title and on the mortgage with an ex-spouse for a defined period of time.
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 address by real estate professionals in a family law settling. Clients should be aware of the following:
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 refinance ability.
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
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 clients wish to defer the sale of the home, each litigant needs to have full knowledge of the risks and responsibilities. Both parties should stay up to date on mortgage payment, have access to statements, and stay in touch with the lender to ensure payments. Both parties should regularly check their credit report.
When a Family Law Real Estate Professional is called in to list a property post-judgment, they often deal with vague language regarding the sale of a community asset. Details are important in drafting agreements concerning the sale or deferred sale of a community asset. It’s also important to use a family law real estate expert who has experience with the many obstacles in family law real estate buyouts and sales. One example is which party becomes responsible for the property if it becomes vacant: mortgage payments, upkeep, and utilities), and how proceeds are divided. Vague terms and omitted language leaves the door open to ambiguity, litigation, and costly delays.
Experienced Family Law Attorneys can 1) Ensure the language in a stipulation or judgment is clear and complete, and 2) Can refer you to a qualified Family Law Real Estate Expert.
THIS BLOG IS FOR INFORMATIONAL PURPOSES ONLY.
THE TEXT OF THIS BLOG WAS MODIFIED FROM AN ORIGINAL POSTING FROM THE ILUMNI INSTITUTE
