Divorce and foreclosure?

Drafting Separation Agreements

Some Things You need to Know.


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Can a divorce stop foreclosure?

Divorce and Separation Agreement

The short answer is no. You can attempt a short sale or deed in lieu of foreclosure (which I will explain later in this article). If one spouse will take over the property and the mortgage, that spouse can then apply for his or her own for a modification or refinance.

Who is responsible for the mortgage?

Legally, the bank cannot go after the spouse whose name is not on the mortgage. If you take out a loan when you purchase the house, then you are solely responsible for the mortgage even if your spouse’s name is on the deed. Signing a mortgage and promissory note to pay has important legal and financial ramifications. The note creates the promise to pay, whereas the mortgage creates the lien on the property.

If both spouses sign the mortgage and promissory note, they’re jointly responsible for the debt and would be liable in a foreclosure proceeding and any deficiency judgment resulted therefrom.


What if one spouse wants to keep the home?

The one spouse who wants to keep the home must either continue to pay the mortgage (if the loan is already in his/her name) or obtain financing for the home. The terms of a divorce will require one spouse to refinance if he or she wants to keep the property. In doing so, the former spouse is released from the responsibility of making future payments. Once you have arranged the financing of your home, you can then easily tailor the language in your D-I-Y- Separation Agreement reflects as such.

What if no one wants to keep the home?

There are several ways to get rid of the home without being subjected to foreclosure proceedings:

• you can sell the home yourself and pay off the debt on the property
• you can rent the home and apply the rent you received to the mortgage
• consult with your bank to apply for a short sale. A short sale happens when you sell your property for less than the amount due on the mortgage. This method of sale requires bank approval.
• complete a deed in lieu of foreclosure, i.e. you deed your property to the bank in lieu of being subjected to a foreclosure proceeding.

It is recommended that you consult with an attorney if you are concerned about your debt liability on your home.