A divorce is often messy. It may even be messier when the two splitting parties have a joint mortgage on their home. A friend of mine, Ella, can definitely testify to that. She and her ex-husband bought a house on a joint mortgage when they were married but it was her ex who would make the monthly payments. When they filed for divorce and it was time to split their assets, she learned that her ex stopped paying their joint mortgage months before they finalized their divorce. Although her ex was the one paying it, the mortgage had her name in it as well so the delinquent payments affected her credit rating too. She did not want the home as the mortgage would be too expensive and neither did her ex. So the dilemma started; choosing foreclosure vs short sale.

Ella would prefer to sell it on the regular property market but due to the delinquent payments and since the bank was about to give them a foreclosure notice she knew they had to do something fast. Making a foreclosure vs short sale decision was definitely not easy for both of them. The divorce itself was causing quite a bitter feud between them and now on top of that they both had to reach a mutual decision on which road should be taken. Her ex did not want all the hassle of having to handle a short sale and would prefer to simply walk away and let the bank foreclose their home. Ella, on the other hand, did not want a foreclosure to blemish her credit rating. Of course, they could arrange to split the debt and exit the mortgage but to do so they would both have to enter loan modification discussions and that would take a lot of their time. They preferred to end things rather quickly.

After several heated discussions, they both finally agreed to get foreclosure assistance to stop the bank from foreclosing their home. At the same time they both did not want to be forced back into court just for the sake of deciding who was supposed to be responsible for the foreclosure and its consequences so they decided to have their divorce attorney to address the issue in the original divorce decree. Ella instructed her divorce attorney to contact a real estate attorney to get advice on the potential ramifications of a short sale or foreclosure so that any issues that might come up later such as tax liabilities or deficiencies could be dealt with. So both Ella and her ex agreed to uphold and fulfill their obligations as noted in their divorce agreement to prevent their mortgager from taking foreclosure action.

Ella and her ex mutually agreed to hire the same real estate attorney to handle the short sale of their home and share any foreclosure information that came from their mortgager or the court. They worked together to ensure that their mortgager would forgive any deficiency with no future liabilities on either one of them. After all, they would not want to be rid of the property only to have to pay more for it as well. In order to avoid all unnecessary hassle, they made sure that their divorce attorneys and mutually appointed real estate attorney constantly updated their mortgager about all the legal proceedings being negotiated. Once all the paperwork for their short sale was filed, they would be free to appoint a real estate agent to handle the actual short sale.

In the end, their home was sold for $50k short of what they owed their mortgagers. The amount was forgiven by their mortgagers but they would still have to report the rescinded debt to the Internal Revenue Services (IRS). They are now both rid of their joint mortgage and would proceed to continue on with their lives – at times as if nothing ever happened.

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Category: Finances
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