What to do in case of negative equity on home loan during divorce?

Question

The home has negetive equity. Wife has no job due to being a stay-at-home mom, but is looking for work. Husband has job, but is going to pay large amounts for spousal and child support. Neither can afford to "buy out" the other. Neither wants the house nor can afford a major repair should that happen. Divorce is pending. Many things are contingent upon wife finding employment.

Bankruptcy is not an option as debt will still be owed and wife has no job!

Any ideas?

Thanks

Answer 1

Sell it and take the loss.

Chapter 7 Bankruptcy can and will eliminate the debt. You should consult with a bankrupcty attorney. The initial consultation is usually free, and they can give you the best advice even if you decide not to file for bankruptcy protection. Don't get bankruptcy info online though, because the local rules can vary with state and locality.

The Best advice I can give is:

1. Put the welfare of the children first.
2. RECONCILE. Divorce is hell.

BTW: There is an old saw about this, I think Dick van Dike said it once in a movie:

She gets the car, I get the payments
She gets the house, I get the payments
She gets the elevator, I get the shaft

Now there is a great solution to your problem, you keep the house, and he makes the payments. Problem solved!

Answer 2

This is the sort of case where a specialized real estate entrepreneur ["shark"] might actually be useful.

What you want is someone who will take over the house subject to the existing mortgage(s).

Oh, sure -- the mortgage likely says that it is due on sale or transfer, and the Shark will handle that.

His method is simply to be honest and confront the lender -- the property is underwater [negative equity], in part because of a bad lending decision that they have to stand up for.

He proposes to take over the property subject to their lien. He intends to make all payments in full and on time. Is this a better deal for you (lender) than foreclosing on the property and eating the loss that will create? [Typically 20% or more of the loan amount.]

Given all of the above, will lienholder waive the right to accelerate the loan?

[NO -- Shark will not legally assume the loan (substitute his credit for yours) unless the lienholder pays him to do that -- typically by writing off (reducing) the principal due by at least 15% and reworking the interest rate downward. Which they won't.]

Despite what looks like a poor outcome [you still legally owe and the lienholder can still sue you for any payment shortage], you could well come out ahead -- you move to somewhere significantly cheaper out of pocket while someone else makes the payments and does the worrying.

{PS What does Shark do? Depending on local laws, he does a lease to own deal with someone who has income but very poor credit. Their payments will be larger than what your payments were.}

I'm sure there are any number of Sharks out there in your community, as there are everywhere in America. Typically, their sign says "I Buy Homes".

[Disclosure: I am not not nor have ever been in the business of being a Shark. I do know some. No, I will not refer you -- which would violate the ethics of this forum.]

Answer 3

You could rent out the house, both go your separate ways, and split the income until the house price has risen enough to get out of negative equity. Although this would only work well if the split is amicable.

Alternatively, I have a friend who is divorcing - they are in a similar situation, so one is going to stay in the house, and get a tenant for their spare room which will help cover the mortgage. Then they will sell the house in a few years time (again, would require an amicable split).

Answer 4

Sell it and take the hit. You don't have another option if no one wants it. Negative equity to be considered a debit in the divorce settlement.

Answer 5

Get a buyer for the house. ONce the sales price is known, contact the lenders and see if you can arrange a short sale. Document any and all conversations with the lender. Get everything in writing. Good luck