Well, if the house is a marital asset, then the debt is probably going to be classified as a marital debt. 
A deficiency judgment is a marital debt if it derives from the short sale of a marital residence prior to the judgment of divorce. After the judgment of divorce is signed, more than likely one party will own the home. That person probably has title to the home, and the mortgage was refinanced to reflect one spouse’s name. In a case like that, if a short sale ensues after the judgment and title has passed, only one spouse will be responsible to pay off the deficiency judgment.
But if title has not passed and both spouses are on the title, then if the house goes into foreclosure and there is no judgment of divorce that orders one spouse to take responsibility for the debt, then both spouses are responsible to pay off the deficiency.
What is a deficiency judgment? Well if, say, you owe the bank $100,000 on a home and you are unable to pay the mortgage for some reason, the bank may give you permission to have a short sale. That means you can sell the house for less than $100,000. Let’s say you sold for $65,000. Then there is a shortfall of $35,000. That $35,000 is a deficiency. You still owe that to the bank. So what happens is that the bank may let it sit there and do nothing. But five years later, they go to court and get a judgment for the $35,000. All of a sudden, this deficiency is now a deficiency judgment. Once they have a judgment, in several states, including New York, they will have about 20 years to collect on the judgment.
Of course, they have both your social security numbers from the days when you were married and owned the house with your spouse. So collecting on the judgment will be easy. They can garnish your wages, put liens on anything you own at that point — so long as you were on the title and deed to the property at the time it went into foreclosure, and so long as the judgment of divorce does not absolve you from responsibility for the debt.
To protect yourself from deficiency judgment, it is wise to negotiate with your lender at the time of the short sale. You need the lender to agree to forgive the deficiency. There are tax consequences to deficiencies as well. So you really need to negotiate with the lender to forgive the deficiency, or you need to get your spouse to take the rap for the whole thing in the divorce judgment. And that is probably unlikely to happen in most circumstances.
Image credit:
Similar Posts:
- Divorce and foreclosure: what happens when they intersect?
- Am I obligated to pay my spouse’s debts?
- When does a bad economy make filing for divorce a dumb idea?
- Divorce in New York: I got the house. He filed bankruptcy. Now what?
- When divorce ruins your credit
- How to handle marital gifts
- Property Transfers and their tax consequences: NY Divorce Laws
- Divorcing? How to sell the marital residence quickly
- BERLIN: Judge rules that in-laws should be repaid gifts to couple if marriage ends in divorce
- What does equitable distribution mean in a divorce?
Loading ...
You are very welcome and happy to provide some information that I hope will provide some help to others. I feel so strongly about the fact that these programs are out there and so few people I speak with are aware of them. Still they are riddled with problems as the lenders can choose not to participate, which many are doing. That’s why it is vital that we keep the pressure on our elected officials.
And next time you are scheduled to be in Ga. give me a shout and maybe we can meet up and dish about divorce!
I will take you up on that, Lisa. Sooner than you think. Thanks for your continued patronage. God bless.
Very good advice you have given here.
Ironically, these days what used to be considered one of the biggest assets to split among spouses has in many cases become the albatross that no one wants or knows how to deal with.
Many homes are now selling as Short Sales. What this means is that the bank or the mortgage company agrees to accept less than the balance that you owe on your mortgage. This is critical when you are upside down in your home, meaning you owe more than what the house is worth. Be aware that you may potentially face a tax bill from Uncle Sam for the forgiven portion of the loan. Some homeowner assistance programs from the Fed waive this provision, so be sure to ask your tax adviser before making any decisions. And remember, the workings of these may be tricky, so definitely use a realtor experienced in with short sales if you need to go this route.
In addition, currently the government is offering several programs to assist homeowners who were experiencing hardship with their mortgages due to the combined effects of the economic downturn and the decline of property values. The programs go under the names of HAMP (loan modification program); HARP (refinancing program); and H4H (Hope for Homeowners – debt forgiveness program).
If you have a Freddie Mac or Fannie Mae loan, you may be eligible for help under one of these programs. If you are not sure what type of loan you have there are several places on the following sites where you can input your address and other information to find out. For more information visit these websites:
http://www.hud.gov
http://www.fha.gov
http://www.makinghomeaffordable.gov
A reminder here that we are dealing with the government and these programs are developing and evolving as we speak. Don’t give up if you don’t have luck initially. Find those who have experience with these issues to have the best chance at success.
I would love to know about others experiences with these programs, as I have been writing to Senators, Congressmen and even the White House to keep letting them know out about what needs to be fixed. Please add your voice too!
You can connect with me at http://www.DivorceMoneyMatters.com
Good luck!
Lisa C. Decker, CDFA
Wow, Lisa, this is great. Thank you for the additional links and info. I think folks in this position (and it seems there are more rather than less of these these days) will really appreciate it. How are things in your neck of the woods? I was there a few days back and it was a bit chilly! Brrrr. But still beautiful. I love the openness and the trees. Anyways, thank you for stopping by as always and keep leaving comments like this one for our readers.