Selling or Keeping The House In A Divorce: 4 Things You Must Know

by | Jun 14, 2022 | Divorce and Finances, Money Management, Navigating Divorce

One of the biggest issues in divorce negotiation is about what to do about the house. Sell it? Keep it? And if it’s the latter, who’s keeping the house in a divorce?

Divorce is a very emotional and difficult experience even if it’s amicable. The house adds a deeper dimension to a distressing situation. Often, it’s the couple’s biggest asset plus the holder of many cherished memories. Or, if the divorce is contentious, the house can represent vengeance: “I’ll keep that house no matter what!”

But should you?

Typically, in a divorce, couples gather minimal information about the house, often limited to the monthly mortgage payment, payoff, and maybe an appraisal which excludes important information — or worse yet, only an online estimate!

 

There are four areas of information you MUST know in order to make a fully informed decision about keeping the house in a divorce. Missing any one can result in disaster.

1. Mortgage

Having mortgage information is just as important as knowing the monthly payment, especially when you’re keeping the house in a divorce. Specifically, it’s important that you have an accurate account of the secured debt. Equally critical is finding out whether both spouses qualify for a mortgage. If not, how does that affect the settlement, especially if one spouse is remaining in the house?

2. Title

Without fully researching the title, there may be surprises like unknown liens or unpaid taxes — something that the spouse who is keeping the house in a divorce would definitely not want to be blindsided with.

3. House Condition

You may get an appraisal and that’s a good start. But did you know that appraisals have limitations? You may not get a true value that includes market conditions and hidden issues with the house. Both will affect the true price of the house or hit the spouse who remained in the house with a devastating bill.

4. Insurance

In deciding whether keeping the house in a divorce is a good idea, you must get a Comprehensive Loss Underwriting Exchange (CLUE) report. The CLUE report covers vital information like if any claimed repairs were actually repaired, or if there are any conditions that make the house uninsurable.

Woman signing contract after selling the house in a divorce

Mortgage, Title, House Condition, and House Insurance. Skipping any of these can result in a financial nightmare — take Adrian’s example below.

Adrian and Sydney’s divorce started out amicably enough. Since they were still friendly, Sydney suggested that they could manage the divorce on their own with minimal guidance. Since Sydney had generally taken lead with the finances, Adrian agreed.

Their largest asset was the house. As the primary caregiver of the children, Adrian wanted to remain in the house to avoid any disruption to the children.

When Sydney discovered that Adrian had a new “friend,” everything changed. Suddenly, the divorce became contentious, and Adrian became absolutely determined to keep the house at all costs. After many arguments, they agreed to a division of assets where Sydney kept more of the financial accounts and Adrian could have the house.

Since Adrian had mainly taken care of the children and Sydney earned the bulk of the family income, Sydney agreed to pay alimony and child support. When they bought the house, they financed the purchase and later opened a home equity line of credit.

As part of the settlement agreement, only Adrian would remain on the deed as owner of the house, but Sydney would pay the mortgage. The alimony amount was adjusted down to reflect the monthly payment. The home equity line was paid off and all seemed set.

Adrian and the children settled into their new lives, and all seemed well.

But three months after the divorce was finalized, Adrian received a notice of default from the mortgage company. Sydney had not been paying the mortgage as agreed! She then discovered that while they had paid off the home equity line of credit, they hadn’t closed the account and Sydney had used the line as an ATM — adding more debt to the house.

Suddenly, Adrian was facing foreclosure and the loss of the house. Sydney wasn’t returning her calls. To try and avoid losing the house, Adrian contacted a lender to see if she could refinance into her name.

Adrian sat down with the lender to review her ability to qualify for a new mortgage. After the divorce, Adrian had found a new job to supplement the alimony and child support but discovered that her monthly budget was still coming up short. To help shore up the shortfall, Adrian had run up her credit cards. To her shock, she discovered that she did not have enough income to qualify for a mortgage. She couldn’t count the alimony because she hadn’t collected it for the six months typically required. She hadn’t been on her new job long enough to qualify.

 

Even if she could use her income, with her credit card balances, Adrian’s debt-to-income ratio was too high and the maxed balances lowered her credit score.

paper cut of couple fighting over a house with gavel in the background

And even if she increased her hours at work, with little savings, there was no way for her to pay down her debt quickly. She thought that maybe she could borrow some money from a family member, but then found out she’d also have to pay the missed loan payments to bring the mortgage current since the default made the house ineligible for refinancing. Her next surprise was that because her name was on the mortgage, the default had lowered her credit score an additional 100 points.

She sought out an attorney for help, but discovered she’d have to take Sydney to court, which required more time and money than she had.

With the bank sale only a couple months away, her only choice was to sell the house.

To Adrian’s dismay, she discovered that the Zillow “Zestimate” Sydney and she had used for the value of the home was woefully inflated, but thankfully, the market was strong, and she received an offer quickly. The price was lower than she originally expected; however, the equity remaining was enough to get her started when they moved.

Unfortunately, Sydney and Adrian had neglected maintenance on the house and several deficiencies were found during the buyer’s inspection. The buyer asked for a price reduction which further lowered her equity, but even worse, unless she installed a new roof prior to closing costing $30,000 which Adrian didn’t have, the buyer couldn’t acquire new homeowner’s insurance needed for their mortgage.

The deal fell apart. With little time left before foreclosure and eviction, Adrian had no choice but to accept a lowball cash offer from an investor. With no home, less money in her pocket, and a miserable credit score, Adrian and her children found themselves in a marginal rental apartment.

Do your house homework!

Sounds like a nightmare, yes? Sadly, situations like this happen all the time. If you don’t do all your house homework PRIOR to settlement, nightmares can happen. And they do.

But if you are armed with everything you need to know about the secured house, you can put yourself in a better position to make a fully informed decision about whether you should sell or keep the house. It might sound challenging, but one of the best ways you can protect yourself is by getting complete information on the debt, mortgage financing, credit, title, the condition of the house (many issues are not readily apparent and can be very expensive to fix), and house insurance.

Any one of these areas can cause a disaster leading to foreclosure and/or bankruptcy for either or both spouses, not to mention the emotional toll on you and your children.

Remember: it’s extremely difficult to change a divorce agreement after settlement, and negotiating from a position of knowledge is critical in order to avoid the financial nightmares that surprised Adrian.

Barbara Oleska for The Better Apart Blog: Selling or Keeping The House In A Divorce: 4 Things You Must Know

About the Author

Barbara Oleska is an award-winning real estate agent with over ten years of serving clients both selling and buying. After seeing too many pitfalls among divorcing clients, she added the Real Estate Collaborative Specialist Specialist – Divorce designation (RCS-D) to her practice in order to provide the best real estate advisement to her clients. As an RCS-D, she works with you and your mediator or attorneys to assist in gathering all your house homework so you can make fully informed decisions with the goal to preserve the credit and the mortgage eligibility of both spouses.

Barbara received her RCS-D from Standford and Harvard Law School graduate, and Vanderbuilt Law School faculty member, Professor Kelly Murray, JD.

Barbara believes in providing her clients with the best information and education so they can make fully informed decisions about the real property in divorce. Beyond her years of real estate knowledge, she also brings extensive training from the University of North Dakota Law School Conflict Resolution Center and a wealth of professional experience in managing conversations and decisions fraught with emotional conflict. Her transformative style supports the parties to come to an informed conclusion about keeping the house for the right reasons.

In addition to the RCS-D, she holds designations in Luxury Properties, Probate and Inherited Properties, and Short Sales. Originally from Los Angeles, she now calls South Florida home.

Barbara Oleska for The Better Apart Blog: Selling or Keeping The House In A Divorce: 4 Things You Must Know

About the Author

Barbara Oleska is an award-winning real estate agent with over ten years of serving clients both selling and buying. After seeing too many pitfalls among divorcing clients, she added the Real Estate Collaborative Specialist Specialist – Divorce designation (RCS-D) to her practice in order to provide the best real estate advisement to her clients. As an RCS-D, she works with you and your mediator or attorneys to assist in gathering all your house homework so you can make fully informed decisions with the goal to preserve the credit and the mortgage eligibility of both spouses.

Barbara received her RCS-D from Standford and Harvard Law School graduate, and Vanderbuilt Law School faculty member, Professor Kelly Murray, JD.

Barbara believes in providing her clients with the best information and education so they can make fully informed decisions about the real property in divorce. Beyond her years of real estate knowledge, she also brings extensive training from the University of North Dakota Law School Conflict Resolution Center and a wealth of professional experience in managing conversations and decisions fraught with emotional conflict. Her transformative style supports the parties to come to an informed conclusion about keeping the house for the right reasons.

In addition to the RCS-D, she holds designations in Luxury Properties, Probate and Inherited Properties, and Short Sales. Originally from Los Angeles, she now calls South Florida home.

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DISCLAIMER: The commentary, advice, and opinions from Gabrielle Hartley are for informational purposes only and not for the purpose of providing legal advice or mental health services. You should contact an attorney and/or mental health professional in your state to obtain advice with respect to any particular issue or problem. 

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