After divorce, home equity in former marital home may be lost without good planning and consideration of housing market downturn.
Q: My ex-spouse and I own a home together that sits on a big piece of property. When we divorced, he opted to continue to live in the house. Our divorce decree gave him he had 5 years to buy me out or sell.
My ex-spouse wound up staying in the home for only a year, and during that time he refinanced the loan so it is only in his name. But the title remains in both our names. Recently, he moved out of the house and is not paying his mortgage. He has advised me he is filing for bankruptcy and including the loan he has on the house.
This now means that I will lose my investment in the house. Can he do this? And, is there anything I can do about it?
A: The first thing to figure out is what your investment in the property is worth in today’s market.
Over the last five years, during this Great Recession, home prices have fallen an average of 30 percent. In some markets home prices have fallen as much as 60 or even 65 percent. If you live in a neighborhood that is filled with foreclosures, it’s likely that your home value has plummeted, and any equity you may have had in the property evaporated long ago.
For instance, one study found that home values had fallen back to where they were in 1998 or 1999. That’s 13 years of home appreciation wiped out.
While your equity may have been wiped out, the good news is that your ex-spouse actually refinanced the property into his name alone, so you’re not on the hook for the mortgage. Or if you are on title to the home, your name is not associated with the debt. But because you signed the mortgage, the lender has the right to foreclose on the home, sell it, and use the proceeds from the foreclosure sale to pay off the debt.
When you allowed him to refinance the home, you should have had him buy you out at that time. Then you would have quit claimed your interest in the home to him and would have been done with the home.
Your situation would be a lot more difficult if you were legally responsible for the mortgage payment. If he stopped making the payments, you’d wind up ruining your credit, or having to find the cash to pay for the mortgage to this property as well as your current residence.
That, by the way, may be an option. You could make the mortgage payments in exchange for your ex-spouse signing over his share of the deed to the property. But you’d really want to understand what, if any, value the property has.
As to the question of whether your ex-spouse can stop making payments, the fact of the matter is he already has. We’re guessing if he had the money, he’s continue making the payments. So, either he’s out of cash or the property value is worth a lot less than the mortgage amount, which means your equity has already vanished. You can probably sue him to start making payments, but you might spend more than it’s worth.
The best thing to do is consult with your divorce attorney to find out what options you have and what it might cost to pursue them.