Q: I’ve been divorced for almost 2 years. My ex-husband was awarded the house and subsequently took over the payments of both mortgages as specified in the divorce papers.

My ex-husband has been laid off several times over the last two year, failed to qualify for unemployment, and still has not refinanced the house to remove my name from both mortgages.

Because of this, my credit has been shot. Today, he called and offered me the house. He’s officially four months behind on payments and received a letter from the mortgage company saying he has 30 days to seek counseling or they will foreclose.

My ex-husband is tired of trying get caught up and is considering bankruptcy. I have told him I cannot afford to take over the payments and refinance the mortgages in my name.

Should he file for bankruptcy or just let the house get foreclosed upon? Also, how will this affect me? Thanks.

A: It’s unfortunate that your ex-husband didn’t refinance the property immediately as a condition of the divorce. If your name is on the mortgage, you are legally responsible for the entire debt, not just half.

While the divorce decree does give you some cover, the loan documents with the lender are still in your name. Since your husband is four months delinquent in his mortgage payments, your credit history will look as though you are four months behind in paying the mortgage.

I’m sure you don’t want this property, but you should figure out if you can rent it to bring in enough cash to cover the mortgage payments. If not, then you should expect the property to go into foreclosure, whether or not your ex-spouse files for bankruptcy. Your credit will then reflect a foreclosure, which will mean that you will not be able to get a Fannie Mae, Freddie Mac or FHA loan for between 2 to 5 years, depending on the circumstances.

If the home is in an area where properties are selling, you might want to list it and see if there are any buyers that would be interested in purchasing the home.

If the sale is high enough to pay off the lender, you’ll be in better shape. If the amount offered to buy the home is lower than what is owed on the home, the sale of the home as a short sale – where the funds given to the lender are short what the lender is owed – will at least stop the foreclosure. Your credit history will take a hit but having a short sale on your credit history is better than showing a foreclosure.

Finally, because you are named on the mortgage, the lender will consider you legally and financially responsible for the debt. If you have assets, the lender may go after those assets to repay the balance owed. In the worst possible scenario, you could wind up with a trashed credit history and have to shell out thousands of dollars to help repay what’s owed on the mortgage.

Your next move is to immediately find a really smart real estate attorney who can help you navigate these troubled waters.

Good luck.

Here are some other articles on bankruptcy and foreclosure:

Bankruptcy or Foreclosure

Home In Foreclosure – File For Bankruptcy?

What To Expect When Facing Foreclosure And Bankruptcy