Q: My divorce was final two years ago and in the divorce decree, I was awarded the house. But prior to my getting a spousal transfer deed, one of my ex-spouse’s creditors put a lien on the house which prevented me from completing a short-sale.
If one of us or both end up filing bankruptcy, which looks inevitable, is there any way to get the lien removed so the house can be sold and prevent a foreclosure?
A: You’d have to convince the creditor that the house is worthless and there is no cash coming out of it. The creditor might be convinced by an appraisal of the property, and a report that lists what other nearby homes have sold for.
If you can reach a decision-maker who understands what you’re saying, there’s a small chance that this might work out and the lien will be removed.
Otherwise, you’re probably stuck.
You are trying to sell your home as a short sale. That means that the value of money that is owed your mortgage lender exceeds the value of the loan owed to that same mortgage lender. There is no equity in the home and the creditor won’t get paid any money if the home is sold via a short sale or in foreclosure.
If you can’t convince the creditor to allow you to sell the home through a short-sale, your other option would be to let the home go into foreclosure. In foreclosure, the lender would wipe out the lien of the creditor and then sell the home to a buyer free of that lien.
Finally, if you file for bankruptcy, your bankruptcy won’t release the lien placed on your home by your ex-spouse’s creditor. Your spouses bankruptcy should release the lien.
If you’re worried about your credit history showing a bankruptcy and a foreclosure, don’t be. Once you have a bankruptcy on your credit history, it’s unlikely adding a foreclosure will do much additional damage.
A real estate attorney or a bankruptcy attorney might be able to give you more information.