divorce - negative equity

[ramonaspaskos]

What is the name of your state (only U.S. law)? california

in the middle of divorce. house is 100k underwater. wife not on loan. when divorced, does she owe me 50k for the negative equity? does she only owe it if i keep the house? our only other assets are retirement of approximately 200K and want her to take 50k less from the retirement accounts.

 

[mistoffolees]

What is the name of your state (only U.S. law)? california

in the middle of divorce. house is 100k underwater. wife not on loan. when divorced, does she owe me 50k for the negative equity? does she only owe it if i keep the house? our only other assets are retirement of approximately 200K and want her to take 50k less from the retirement accounts.

You have it backwards. If you keep the house, you're taking on the debt and asset voluntarily. She doesn't owe you anything.

If, OTOH, the house is sold for a loss, your marital assets would be $100 K lower, so she'd get $50 K less of the marital assets. That is, you'll pay off the debt and she'll still get 1/2 of what's left (but there will be $100 K less left).

 

[nextwife]

You have it backwards. If you keep the house, you're taking on the debt and asset voluntarily. She doesn't owe you anything.

If, OTOH, the house is sold for a loss, your marital assets would be $100 K lower, so she'd get $50 K less of the marital assets. That is, you'll pay off the debt and she'll still get 1/2 of what's left (but there will be $100 K less left).

If SOLD upside down, and they need to pay out 100K negative equity, it generally does not come out of retirement.

Some lenders will agree to carry a portion of the negative equity on an unsecured note. I've arranged for neg equity short sales to be divided, for payback in divorces, into two SEPARATE notes for borrowers. Example, maybe they get the bank to waive 1/2rd, they each take back a note for 1/4.

When they enter into their short sale negotiations, they can advise the lender short sale coordinator it is a sale-due-to-divorce and that they want to separate any funds "carried" by note between them into two notes.

He probably is best off selling now and dealing with the neg equity between them NOW. If he's ordered to refi her off in the divorce, he'll end up being in contempt because no lender will refi the size loan needed. I'm getting really tired of hearing from people whose court decrees created impossible requirements ("But you HAVE to refinance this way-upside down loan for me because my divorce decree SAYS I HAVE to refinance him/her off by such and such date!"). Dontcha love court orders that try to require third parties to do something that can't be done? An upside down loan CANNOT be refinanced.

 

[mistoffolees]

He probably is best off selling now and dealing with the neg equity between them NOW. If he's ordered to refi her off in the divorce, he'll end up being in contempt because no lender will refi the size loan needed. I'm getting really tired of hearing from people whose court decrees created impossible requirements ("But you HAVE to refinance this way-upside down loan for me because my divorce decree SAYS I HAVE to refinance him/her off by such and such date!"). Dontcha love court orders that try to require third parties to do something that can't be done? An upside down loan CANNOT be refinanced.

Yes, but some of that also has to do with lazy or uncaring individuals, too.

If I had a court order that I had to refinance by such and such a date, I'd start early. It would then become clear that I wasn't going to be able to refinance, so I'd put the house on the market. But, then, I guess you can't expect everyone to be mature and rational.

Even more reasonable would be for the people to speak up at the time of the hearing. When the judge says they're supposed to refinance a house which is underwater and they don't have cash to bring to the table, it should be pointed out to the judge at that point so that another option could be considered. In some cases, the judge may simply not know that the house is underwater.

 

[nextwife]

Yes, but some of that also has to do with lazy or uncaring individuals, too.

If I had a court order that I had to refinance by such and such a date, I'd start early. It would then become clear that I wasn't going to be able to refinance, so I'd put the house on the market. But, then, I guess you can't expect everyone to be mature and rational.

Even more reasonable would be for the people to speak up at the time of the hearing. When the judge says they're supposed to refinance a house which is underwater and they don't have cash to bring to the table, it should be pointed out to the judge at that point so that another option could be considered. In some cases, the judge may simply not know that the house is underwater.

An underwater house is as hard to sell as it is to refinance. Additionally, some homes went underwater very quickly that weren't when the divorce began.

 

[mistoffolees]

An underwater house is as hard to sell as it is to refinance. Additionally, some homes went underwater very quickly that weren't when the divorce began.

Not really. The buyer doesn't care if the house is underwater. Underwater doesn't make it any harder to sell - if you're selling a house at market price, the amount of the mortgage is irrelevant. It's simply a matter of deciding to sell at market price, not some inflated "maybe I'll get lucky and get more than the house is worth" price.

What it DOES mean is that the seller is going to have to work it out with the bank - either come up with the money or get a short sale. But that doesn't change how easy or hard it is to sell.

 

[Bali Hai]

An underwater house is as hard to sell as it is to refinance. Additionally, some homes went underwater very quickly that weren't when the divorce began.

Misto's point is that the court doesn't give a crap what the circumstances are, people are supposed to do everything they can including jumping off a cliff to obey the court's ridiculous orders.

 

[nextwife]

Not really. The buyer doesn't care if the house is underwater. Underwater doesn't make it any harder to sell - if you're selling a house at market price, the amount of the mortgage is irrelevant. It's simply a matter of deciding to sell at market price, not some inflated "maybe I'll get lucky and get more than the house is worth" price.

What it DOES mean is that the seller is going to have to work it out with the bank - either come up with the money or get a short sale. But that doesn't change how easy or hard it is to sell.

It DOES make as difference because some secondary mortgage servicers simply won't work with sellers, or take so long that they lose their buyers and have really crappy short sale departments. You can't sell at market price if upside down unless you have the means to make up the shortfall. I've handled short sales that were in excess of 100k short to close.

One can't sell if you can't clear title.

 

[LdiJ]

However folks, in this case he doesn't have to sell or refinance. He said:

in the middle of divorce. house is 100k underwater. wife not on loan.

He can stay in the home and live there as long as he likes...until the market recovers or he is no longer under water.

 

[mistoffolees]

However folks, in this case he doesn't have to sell or refinance. He said:



He can stay in the home and live there as long as he likes...until the market recovers or he is no longer under water.

Good catch.

Then go back to my original response. If he's staying in the house, wife doesn't owe him anything (unless he can negotiate something from her).

 

[ramonaspaskos]

what if i don't keep the house and try a short sale? i will be responsible for taxes on the amount forgiven. should the ex not be responsible for half?

 

[mistoffolees]

what if i don't keep the house and try a short sale? i will be responsible for taxes on the amount forgiven. should the ex not be responsible for half?

Ask the judge for that to be added to your divorce decree. It is not unreasonable.