“The Family House In Divorce: To Sell Or Not To Sell?”

One of the main assets in a divorce is often the family residence. There are two possible scenarios, depending on whether or not the house has any equity in it.

If the house does not have any equity, the decision is to either let the house go in foreclosure (this can be financially advantageous, but has negative credit consequences) or for one party to take the house and assume the debt. More about the debt issue later.

If the house DOES have equity, you are looking either at a buy-out by one party (either via a cash buyout or by equalizing against other property, such as a retirement) or by selling the house. Selling the house is the cleanest solution, although you will still have to discuss repairs before selling, any claimed credits for payments on the property, and how to divide up the proceeds. But it eliminates the biggest potential problem: how to get the name of the person who isn’t getting the house off of the mortgage.

If the house is not sold, and both parties are on the mortgage, you have a significant potential problem. Eventually, the party who gives up the house is going to want to have the mortgage off their credit. They will not be able to buy another house in most scenarios until that is done, and if the other person is late on payments, that goes on your credit as well.

One way to deal with this is to require an immediate refinancing of the loan in order to change the way the debt is held. If this can be done as aprt of the divorce, it is very good idea. Sometimes you can’t do that, however—credit may not be good enough, income may not be high enough, and any number of things can go wrong, even changing interest rates driving payments up.

One of the most common solutions is to put in a provision that the other party shall make reasonable efforts to refinance the home within a certain period of time—a year, or 6 months, or whatever term is chosen. I think these clauses are a TERRIBLE idea. If the other party tries to refinance, and can’t, you are stuck. The time limit means nothing. As long as the other party tries to refinance from time to time and shows proof to the judge, the property is not going to be sold. The judgment simply doesn’t allow for it.

If it is necessary to have such a provision, for practical or other reasons, it is VERY important to have the clause written that they have a certain amount of time to refinance, or else the property will be sold. It needs to be very clearly spelled out what will happen if the property is not or cannot be refinanced. How the proceeds will be split, etc., needs to be listed. If you intend to have the right to take over the property if the other does not make payments or cannot refinance, that needs to be spelled out as well. Essentially, you have to think of all the possibilities and spell them out specifically in your judgment, or you could be left without the house, but with all the consequences to your credit.

DISCLAIMER: All legal principles quoted are valid as of the date of writing in the State of California. However, you should NEVER base your actions on a legal article, blog, or internet story, as facts in real life are complicated. You should have your case evaluated by an attorney experienced in the area of law needed for your case. In addition, there are often exceptions and potential changes to results that occur due to facts that you may think are trivial or unimportant. This article should not be taken in any way as legal advice on your specific legal matter.

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