What to do with a house that’s under water in a divorce

You’re divorcing and you need to sell your house that you own jointly with your spouse but with the recession, your house is now worth less than the mortgage that you have on it.  You’re under water. You’re upside down on your mortgage.  Whatever you call it, you’re stuck and don’t know what to do.

Well, here are your choices:

  1. You stay in the house with your divorced spouse until either one of you can afford to move out or refinance.  You might be thinking to yourself that that is ridiculous.  Who would ever live with their divorced spouse AFTER the divorce?!  More and more people are doing so in this new economy because there is simply not enough money to go around.  It’s a sucky situation but it’s a reality.
  2. You and your spouse continue to co-own the house together until someone can refinance the property.  Either you live in the house or your spouse lives in the house.  You could have a situation where only the person who’s living in the house pays for everything or everything is split 50/50.  Either way, you two will still own a house together.
  3. You refinance.  If you try to refinance, know that you will have to put up the money to make up the difference between what you owe and what your house is worth.  That would be tens of thousands of dollars if not more.  Some people have that kind of money but most do not.
  4. You do a short sale.  A short sale is when you get the permission of your mortgage lender to sell the house for less than what you owe on the mortgage and hopefully, you negotiate that you won’t have to make up the difference.  Know that most lenders will not extend the option for a short sale unless if you’re behind on your mortgage payments by several months.  At that point, your credit would’ve taken a hit already.
  5. You let the home go into foreclosure.  This is not an ideal situation and it’s not generally recommended.
  6. You try to negotiate a modification or an assumption of the current mortgage.  This is very difficult and very lender specific.  Some will let you  modify the loan or do an assumption whereby you don’t have to refinance the house and yet be allowed to remove a spouse’s name off the mortgage.  It’s worth a try.

Those are all your options.  The important thing to remember is this:  do not ever sign over a deed of the house over to your spouse’s sole name without also being off the mortgage.  If you do so, you will have no equity interest in the property yet be liable for the mortgage (debt interest).

3 Responses to What to do with a house that’s under water in a divorce
  1. Mortgage and Divorce Question
    September 9, 2009 | 11:49 am

    [...] could cash out some assets and pay down the mortgage enough to where it wouldnt be a short sale. What to do with a house that’s under water in a divorce | Massachusetts Divorce and Wills Lawy… lists the options pretty well. many lenders wont renegotiate (the last one listed) but it could be [...]

  2. [...] Massachusetts Divorce and Family Law Attorney Gabriel Cheong offers great advice on his blog, the Massachusetts Divorce Lawyer Blog, about what to do if you are [...]

  3. Thank you, very helpful as I had a family member going through the same thing.

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