OK got a non-hypothetical situation that thankfully I am not involved in, but have been tapped for advice and looking for a good starting point for advice and Google has failed.
Person A and Person B were married some years back. A & B had a house. The title to the house and property was in B’s name, but had both A & B on the mortgage. Person A has no other rights on the house (deed, title, etc.) even though A paid the vast majority of the cost.
A & B got divorced but A missed a key step. They didn’t refinance and now the house owned by B still has A on the mortgage. Person B is not financially responsible has gotten into the habit of missing house payments and is dinging A’s credit rating. B is also not willing to let A out of the mortgage even though A now lives in another state and they have been divorced for several years.
A is trying to figure a way to get out of this property. A, however, is perfectly willing to assume the mortgage completely and sell the house and has the means to do so, but B is not going to cooperate in signing over the mortgage, selling, refinancing, or anything.
So the question is, what can A do to get out of this situation?
I’ve suggested the following but don’t know how viable any of these are. What are the pitfalls, and does anybody have any other suggestions? Obviously, IANAL applies unless you actually ARE a lawyer.
Obviously, the first step is to ask a family law or personal property lawyer/ What kind would work best?
Offer to make B a cash offer to get out of the house, with the money in escrow to be paid only once the title/deed/mortgage is completely in A’s name and B moves out of the property. (I’d also throw in some verbage about leaving the house intact.)
Let the bank foreclose on the property. What would be the repercussions? Would this be enough to get B evicted and off the deed? Could B somehow sue A into paying? Since A would be happy to keep paying the mortgage alone, would the lender be more willing to play ball as long as they get their money? Again, A is not interested in keeping the property, just trying to keep the situation from having credit ruined for the next 25 years.
IANAL, BUT… A is responsible for the mortgage, period. The only way to get out of it is to get someone else to assume it, and since B already holds the deed, B has no real incentive to do so.
A has been very foolish in taking on the debt with no title, and also in not making refinancing a part of the decree.
No, the bank would sue A into paying, since A owes them the money. If A refuses to pay, and miraculously avoids getting liened into oblivion, then a foreclosure would probably end with the new owner evicting B, but asking the bank to assist in fraudulently evicting B from the house (which is what “play ball” sounds like to me) is not reasonable, and may even be actionable.
Thanks for the input. I definitely don’t want to suggest anything illegal - that would just make things worse. I’m just trying to figure the mechanics of it. Since both of them are on the loan, shouldn’t they both be liened into oblivion? The one in the house doesn’t have a lot to take, and the threat of getting sued may or may not matter. I figured, erroneously it sounds, they would both be pursued equally. So it sounds like foreclosure isn’t so much the nuclear option as it is mutually assured destruction.
This should have been addressed in the divorce decree. I’d be amazed if it wasn’t, unless they went without a lawyer and bungled it horribly. First step should be to review the divorce decree and see what it says about division of marital property. If the parties aren’t cooperating now, I suspect it will take a lawsuit to resolve it. “A” should probably get a lawyer.
First, I would consider foreclosure be a last resort if the lawyers can’t find a way to make B let A off the mortgage.
But let’s go with the supposition that A exhausts all avenues and is still on the mortgage.
First A needs to find out if their state is a “Recourse” state or not. If they do live in a recourse state that means the bank can sue A for the difference in what the bank gets for the house vs. what A owes on it.
In a non-recourse state the bank can not sue A for that difference, but it will be considered as debt-forgiveness as far as taxes are concerned so they would want to check with a CPA to find out what that means in terms of owing the IRS at the end of the year.
Other repercussions would be a major credit hit. I believe it stays on your report of 7 years. But that’s better than the 25 years as previously mentioned.
As for B suing A, well it could happen (you can sue anyone for anything really if you can find someone to take your case), but that would be for a lawyer to decide if B would have a case.
After the foreclosure hits and A/B no longer own the property the bank will evict any current occupants.
Depends on whether the house is in a “recourse” state (where the bank can go after you for the deficiency) or “non-recourse” (where they cannot).
A is stuck between a rock and a hard place. If he (she?) brings the mortgage current, there’s no way to get B out of the house. If A does not, then A’s credit is trashed. I assume in fact that it already is, if B is not making payments.
Is there any equity in the house at all? If so, then A might offer B some cash to get out of the place / sign it over, then A can bring it current. If not, then the best thing may be for A to just let the bank take it, and take the credit hit.
If A had legal representation at the time of the divorce, but the lawyer did NOT tell A to force B to refinance, then A’s lawyer should be charged with malpractice.
A needs to lawyer up. Like Oakminster said, this should have been dealt with in either the Divorce Decree or the separation agreement if such a thing exists there.
Don’t know the particulars about the divorce, except that A&B weren’t particularly rich and were trying to avoid fees, and that the split was amicable enough that “I’ll be sure to sell the house asap” was good enough. They did have a lawyer, but it wasn’t included in the divorce… which A has admitted is a pretty big D’OH now.
That was sort of my line of thought in suggesting that A try to buy B out of the house. That seems to be the most logical thing to try. It may cost some bucks in the short term, but in the long run, it seems the best way to get clear of the whole mess.
Thanks for the smart money link, though this started before 2007. I will pass the info along anyway.
Lawyering up is now underway. Shoulda, coulda, woulda on dealing with this in the divorce decree. Me, I would have cut B off at the heels, but then I’ve never been married or gone through a divorce, so I’m just armchair quarterbacking at this point. It has been an eye-opener for me, though, as to how important it is to have good representation in any legal matter. Good intentions and trust don’t mean squat sometimes. Having someone who at one point was “the one” turn around on you like this has to suck, especially when it reaches the point you end up in court.
Anyway, thanks for the responses and if there is some kind of resolution I will post a coda.
He’s not even on the title? This was an atomic level fuckup. I’m glad A is earning these days, but he is not a bright bulb.
I had a whole other response prepared re the only solution being to tell “B” that she has two options and be prepared to exercise them. Tell her to cooperate with getting him off the mortgage or he stops paying period, and she loses the house.
In retrospect looking at the big picture objectively this is probably not the most prudent strategy.
His credit is already pretty beat up by what has gone down, so how much more of a whipping he’s going to take at this point is open to question. She’s making the payments, but in a stop and go fashion.
It might be more effective to have A take the credit beating in the near term and simply wait her out if she is really this sketchy financially. At some point in the future if it all turns to shit and the bank looks to him for relief, and he goes toe to toe with them, he will at least have had time to prepare legally and financially for that eventuality. Rushing that day makes no sense at this time as long as she is still making the payments. He can potentially even start an LLC or a corporation and live his life through that shielded entity separate from his personal finances.
Effectively the only way he is going to get off the note in the near term without going bankrupt (or coming close) is offer her a huge carrot. The crux of this is determining if she is really going to go belly up financially at some point, or will keep struggling to make the payments. If she’s on the way down and out and her only option is to lose the property (assuming A has told he will not cooperate with the banks and he will let it be foreclosed, and she believes him) offer to buy the house from her, and lease it back to her at $ 100 less per month than what she is currently paying in mortgage (and possibly offer her a few thousand in cash as well). He will guarantee this lease rate for 3 years. After that it will be at a market lease rates. The current interest rates are so much less than a few years ago he may actually be able to do this without taking a beating. Her other option is to lose the house period.
On the other hand if it’s likely she’ll muddle through and keep making payments, he just needs to take the credit beating and stand pat. At some point, if the market recovers in the next few years it’s quite possible she may want to sell the house ahead of going bankrupt.
This is all a judgement call. Looking a the big picture it might make more sense to simply prepare (per above) for a financial shit storm and ride out the current credit dings. I’d bank that at some point in the next few years she’s going to want (or need) to sell the house and at that point A’s problem is solved without having to offer incentives.
I have a question about an inverse case to this one. A & B are both on the title but only B is on the mortgage.
[Rationale for this was that B wanted A on the title so that A can deal with paperwork and such relating to the house without a POA, but B did not want A on the mortgage so that they could buy other properties with only A on the mortgage, and thus avoid FM limitations on number of mortgages in one person’s name.]
Question is: in the event that they should split up, is there any chance that, following the paper status, the property is split up between A & B but the entire debt remains the responsibility of B? (The people I know who did this are not thinking of splitting up and it’s an extremely remote possibility, but I was wondering in theory. It’s an investment property and they do not live in it.)
You mean, if they sold the place? If so, the proceeds would satisfy the mortgage and anything left over would be split between the two of them.
If they held onto it jointly, they wouldn’t necessarily have to do anything - but I think they would want to set up specific legal protections as part of the divorce degree. If I were B, I’d insist on having some kind of formal partnership agreement drawn up where the rent went to the mortgage first, and a certain percentage of the profits were sequestered in some sort of escrow (to cover repairs) - maybe even have both partners pre-fund that escrow account. And that in the event that repairs were needed over that, both partners are equally responsible (gives each leverage to force the other to chip in his half). Basically, the same as if they were two acquaintances who’d decided to go into partnership.
A would need to look into whether s/he can be notified by the bank if the existing mortgage payments start to slide. The bani might say “nope, you’re not on the paperwork, not gonna tell you a THING”.
And, they would want to look into the the way it’s recorded, for survivorship purposes. I forget the terms, but there’s one where the surviving co-owner automatically owns the whole thing on the other one’s death, and one where the decedent’s heir(s) would inherit and and the survivor therefore has a new co-owner. I think the former may be allowed only for married couples, in some states. So when they divorce, they’d need to sort that out (can be done by quitclaiming, I think).
Sorry if I wasn’t clear. My question is about what a court might order, if the parties could not otherwise agree.
The question is whether there is some possibility that a court might say: “the property is in both names so we divide that 50/50, but the debt is in B’s name so that’s all B’s responsibility”. So that if - for example - the property is worth $200K and the debt $100K, A & B each end up with $100K of property, but B ends up with the entire $100K debt.
I would think since it’s obvious that the debt funded the purchase, that it goes with the property and the only thing to divide is the equity, but I was wondering if that’s completely cut-and-dried.
