Sunday, June 15, 2008

What to do with a zero equity home in a divorce?

Sad reality these days when a separating couple must decide how to deal with their home when it has negative equity. In better years, one spouse may buy the other out with a refinance or cash payment for their share of the equity. Now, if the home was purchased or cash-out refinanced recently and the home went down in value, the spouses are in a very different situation. With a negative equity position, one spouse may have to offer the other money to get out of the situation. The other spouse may very well not want to keep the house too. But what if both don't want the burden of the home? The solutions are difficult - bring money to the closing to pay off the lenders, attempt a short sale (low likelihood of success) or let the home slip into foreclosure - with all the negative affects associated with that. Keeping the house may or may not be possible depending on the loan that exists. Will it readjust? Will the single income earner be able to keep up with the payments? Will the exiting spouse still have liability if the loan is not kept current? Probably. Can a refinance even be possible? These are all very complicated questions - more so influenced by how well the two parties communicate now and in the future. There is a price for freedom to be sure. Any magical solutions greatly appreciated!

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