Historically, the family residence has been one of the most significant assets to be divided during a marital dissolution. Many parties contemplating divorce relied on the fact that the home would be sold and the proceeds divided evenly under New Mexico community property law. However, the flat real estate market and negative equity now prevent many divorcing parties from selling the family residence. Even if you know that the family home cannot be sold, this does not mean that you need to remain trapped in an unhappy marriage. There are other options for dealing with the family home during a New Mexico divorce.
Deferring a Sale:
If the market conditions, including low demand or depressed home value, make it a bad time to sale the family home, you may arrange a deferred sale of the home. One of the parties may be granted temporary possession of the home and required to make mortgage payments and to take care of other maintenance issues. This essentially transforms you and your spouse into partners in a real estate investment – the family home. A marital settlement agreement may be prepared that outlines the conditions under which you will later sell the home when the real estate market has turned around. If neither spouse wishes to live in the home or can afford to live there, a related option would be to keep the home as a rental until market conditions improve. This option makes it important to include clear terms in the marital settlement agreement regarding how the rental payments, mortgage payments, taxes, and other costs of maintaining the property will be handled.
Short Sale of the Family Home:
While a deferred sale allows parties the opportunity to recoup a return on their investment by waiting for market conditions to improve, sometimes neither party can afford to pay the mortgage and other costs of maintaining the residence. If you are hopelessly upside down on the property, you might consider a short sale. When a lender agrees to a short sale, this essentially means that the bank is willing to accept less than the principal owed as satisfaction of the loan. Although a short sale may have less of an impact on your credit rating than filing bankruptcy, there may be tax implications based on the forgiven principal. Further, short sales can be a dicey proposition because they frequently fall apart at the last minute after the bank rejects the short sale offer, or other issues keep the short sale from being consummated. It is important to seek legal advice from experienced Divorce Attorneys in Albuquerque before preceding if you are considering this option.
Allow Your Spouse to Take the Home:
If the house has positive equity, your spouse may be able to refinance the house in his or her own name and keep the property. When the home has negative equity, however, the strategy of letting your spouse keep the home can have serious disadvantages. Because you will remain on the loan, you may have difficulty qualifying for a subsequent home loan because of the drag on your debt-to-income ratio reflected by the mortgage payment on the family residence. Further, you have no protection from the mortgage company if your spouse subsequently defaults on the home loan. If your spouse is unable to make the mortgage payments, you may end up with a foreclosure on your credit. Depending on the laws of your state, the mortgage company may even pursue you for a deficiency judgment for the difference between the outstanding principal and the amount the bank receives in a foreclosure sale.
The above information is designed solely to illustrate general principles of law, and does not constitute a specific legal opinion on individual cases. We suggest that you contact experienced legal counsel for a specific opinion tailored to your individual circumstances.
If you are considering divorce but are worried about property division issues, Jay Goodman & Associates offers a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can discuss your situation and answer your questions. Call us today to schedule your free consultation at (505) 989-8117 to learn about your rights and options.