Divorce With An Underwater Mortgage-Short Sale, Foreclosure, or Bankruptcy In Phoenix, Arizona
Unfortunately, in recent months, several of my Arizona pre foreclosure clients are not only going through the emotional stress of having an underwater mortgage, but are also contemplating (or are in the process o)f going through a divorce, trying to decide between a short sale, foreclosure, or bankruptcy. I will lead off by saying that I am not a divorce attorney, and cannot/will not give advice as it pertains to divorce. I am simply a Scottsdale real estate broker who has extensive experience in helping homeowners currently in an Arizona pre foreclosure situation avoid the serious ramifications of foreclosure.
When it comes to the disposition of real estate, judges, mediators, etc. often unknowingly issue decrees that could put one or both spouses in very difficult financial situations. Some are so bad that they almost guarantee future financial disaster (i.e. foreclosure, bankruptcy, etc.). Recently, I have found that when I've worked with competent divorce and real estate attorneys on these cases, financial disaster was avoided, and the divorcees were able to walk away from the future burden of their largest jointly-owned debt, their home.
Unfortunately, I sometimes get calls from sellers who have already gone through the divorce, and are now forced to live with the order from the courts. Two of the most problematic orders that I have seen are:
1. One of the spouses is forced to sell the house by a certain date.
2. One of the spouses is forced to pay off the other spouse (through refinance, if necessary)
Forced To Sell
For the most part, I see this for divorce decrees that were written under/during favorable real estate market conditions. For obvious reasons, in today's real estate world, selling for a profit is not possible, as most homes in the Phoenix and Scottsdale market are so far underwater. In these Arizona pre foreclosure cases, a short sale is the best option (if the other spouse and/or judge will allow it). I will get to Arizona pre foreclosure sales in more detail below.
Forced To Pay Off/Refinance
Most of my clients do not have enough cash in the bank to pay for their spouses equity position on the mortgage (if there is any equity at all). In cases like these, some decrees force the other spouse to refinance the loan in order to come up with the payoff. Again, due to declining market values, refinancing a home is next to impossible in today's world. More often than not, homes will not appraise for a high enough amount to allow for refinancing.
What Is A Short Sale, And How Could It Help In A Divorce Situation?
Simply put, a short sale is when a lender (or lenders) accept less than what is owed on the mortgage as a payoff of the debt. If negotiated properly by someone who has experience with the Arizona pre foreclosure process, the lender will sometimes forgive the shortage, with no future liabilities to the borrower. In almost all cases, it is a better alternative to foreclosure. We have a multitude of Stop Foreclosure Reports on the subject for you to review.
In the case of either short sale or foreclosure, there may be tax liabilities, and this issue should be discussed with a reputable CPA before deciding on which option is best for you. In most cases, our clients are covered by the Mortgage Forgiveness Debt Relief Act And Debt Cancellation. Feel free to Google this for more information.
In some cases, lenders will require a financial commitment on the part of the borrowers to cover part of the deficiency. Again, with an experienced qualified Arizona pre foreclosure specialist, limiting or eliminating this requirement is possible. In most cases, our clients have received protection under the Arizona Anti-Deficiency Statute.
Inevitably, the tax ramifications and deficiency issues will need to be dealt with, if there are financial obligations that come from them. Rather than getting forced back into court to decide who is responsible for these issues, it is best to have your divorce attorney address this potential liability in the original divorce decree. For this reason, it is imperative for divorce attorneys to contact an experienced real estate attorney and/or a real estate brokerage that is experienced in dealing with the Arizona pre foreclosure process to discuss the potential ramifications of a short sale or foreclosure before agreeing to the terms of the divorce decree.
Do All Real Estate Agents/Brokers Understand the Short Sale/Foreclosure Process?
NO. I like to tell people that the Arizona pre foreclosure arena is a contact sport, and you need to work with a company who has experience closing them. We all have friends/relatives/neighbors who hold a real estate license. One of the biggest mistakes I see people make when trying to short sale their home is hiring an "acquaintance" rather than an experienced short sale agent/broker. Inevitably, these Arizona pre foreclosure homeowners usually end up as foreclosure statistics, rather than successful short sales. When interviewing potential short sale agents/brokers, ask the following questions:
1. How long have you been selling short sales?
2. How many short sales have you successfully negotiated/closed?
3. How many short sale listings did you close in 2009? How many failed and went to foreclosure?
4. Have you received any special training/education on the short sale process? With whom? (ask for website address for training/education company)
5. How do you market your short sales? (i.e., personal website, MLS, social media, etc.)
6. Have you ever worked with a couple going through a divorce and trying to short sell their home?
7. Do you have a list of current/former clients I could call?
In today's real estate market, some agents will do/say anything to get a listing. When dealing with the disposition of your largest asset, and the financial consequences that go along with an unsuccessful short sale (foreclosure), you really need to stop worrying about hurting the feelings of your friend/relative/neighbor by not hiring them to work on your behalf, and worry more about the outcome. With that being said, if one of these "acquaintances" has experience dealing in the Arizona pre foreclosure market, and has been successful closing them, go for it!
When faced with a divorce that involves an underwater mortgage, you are undoubtedly trying to decide between a short sale, foreclosure, or bankruptcy. After consulting with your divorce attorney, and it is determined that a short sale is a viable option, please don't hesitate to call me to discuss your situation further.
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Bob Hertzog
Summit Home Consultants
www.forsalephoenixhomes.com
Copyright © By Bob Hertzog 2010 *Divorce With An Underwater Mortgage-Short Sale, Foreclosure, or Bankruptcy In Phoenix, Arizona*