Real Estate Options Following a Divorce
During the divorce process, if the couple owns a home, they will need to sort through a number of real estate options for their home. They will first need to determine if either spouse wants to keep the home following their divorce. If so, they need to determine if the spouse who remains in the home following the divorce will have enough monthly income to stay current on the mortgage.
If, for example, the wife is awarded the home, and the wife does not have sufficient income to cover the mortgage payment and all of her household expenses, the wife could try to obtain a loan modification with her lender. The wife will need to submit a detailed financial package to the lender. Loans can be modified in a number of ways, depending upon the investor guidelines. Typical loan modifications involve lowering the interest rate, extending out the maturity date and putting any missed payments on the back end of the loan as a balloon payment.
If neither spouse wants to keep the home, the home can be sold through a regular sale, or the home could be sold through a short sale if the home is underwater. A short sale is when the home is sold for less than the balance of the loan(s) on the home. The benefit of a short sale is that the credit damage is far less than the credit damage from a foreclosure.
Sometimes, despite all best efforts, a couple cannot sell their home if the home is in too much disrepair, or the home is in a location that is extremely difficult to attract a buyer. In this situation, the couple can look into a Deed in Lieu of Foreclosure. A Deed in Lieu of Foreclosure is a transaction in which the homeowners give the home back to their lender to avoid a foreclosure. The only caveat is that some lenders are not willing to participate in this option.
Another real estate option to consider would be letting the home go to a trustee sale, also referred to as a non-judicial foreclosure. Arizona has an “anti-deficiency statute” which states that if property is (1) 2.5 acres or less, (2) a single or two-family dwelling that (3) has been lived in by anyone, then a homeowner can walk away from any loan used to purchase the home. A homeowner cannot walk away from a second loan that was taken out after the home was purchased.
All of the above real estate options should be reviewed first with an Arizona real estate attorney so that the homeowner understands the Arizona law, the potential liability and possible tax consequences for each real estate option.
Article written by Ellen Lawson, Attorney at Law