As a real estate agent, you probably think you’ve seen it all. Today, there are always scenarios that can create myriad issues for you to consider. It is always best to be prepared for anything.
One such scenario is a short sale with a mortgages that has the names of divorced spouses on it. Your client who has been living in the house may end up with a spouse coming back to claim some money, such as a relocation incentive offered by a short sale lender.
Whether the spouse who has not been living in the home has a claim on the relocation incentive could depend on the divorce decree. If they lived in the home together, they could share the relocation incentive. If the divorce decree made the spouse living in the home responsible for the repayment of the loan and everything else in the divorce has been settled, the spouse selling the home in the short sale is entitled to the relocation incentive.
This scenario should open the eyes of all agents. You can be better prepared to serve any issues for your clients by knowing their options should divorce occur.
For many clients, the best option is going to be to sell the home. This will be easiest if they have equity in the house, and the house can be sold and the profit split.
From a financial and logical standpoint, selling the home and splitting the profit is the cleanest way to deal with the mortgage.
If one spouse can take over the payments, they can refinance the home under their own name. This can avoid a number of issues in the future, such as the relocation incentive scenario.
And it is never a good idea for a client to assume that their ex will make timely mortgage payments. If both names is on the mortgage, the problems of one spouse could become the problems of the other, too.
Another option for clients to consider is a quitclaim deed, a legal way to transfer interest of real property. Signing this deed means the person is forfeiting their claim and right to the property.
Signing this deed in divorce gives the other party full rights to the home, but their name still remains on the mortgage. In this scenario, your client will still be held accountable for any missed mortgage payments and their credit score will be affected.
When selling the home isn’t a viable option, that is where a short sale comes into play.
For your clients, a short sale will negatively impact their credit score and it can have tax implications, as the debt cancellation offered by the lender is viewed by the IRS as income. However, a law passed in 2007 and extended through 2016 has exempted debt cancellation income.
Other options to consider include renting the home to delay the sale until some equity can build up. This could buy your clients some time and prevents a short sale.
If your clients can live together peacefully under the same roof, they could continue to live together, saving money and waiting until the market in their area goes up.
When issues cannot be easily handled, it is always best for clients to seek the advice of their divorce attorneys and settle issues by other means.
A major asset that any couple will have is a home mortgage. For clients who are divorced or in the process of divorcing, handling the mortgage correctly in the divorce will help ensure that the parting couple go their separate ways on the right foot financially.