HOW TO DEAL WITH A NEGATIVE HOME EQUITY DURING A DIVORCE
Your home is your biggest asset during a divorce but what if you find out that you and your spouse owe more money on the marital home than the house is worth. You and your spouse need to understand the implications and understand your options.
The first step to take would be to find out the value of the home and figure out how much you are in the negative. The best way to figure out value is through an appraisal. After you find the value of the home you still need to factor in the closing costs and real estate fees.
Once you determine the total deficit of your current mortgage and see where you stand financially you can make the best decisions and figure out the best options available to you and your spouse.
If you have a large deficit, there are generally three options available. The first option is to keep the house and one of you or both of you live in the home. Keeping the home until the market changes and for you to build up equity. If you choose this option you will have to come to an agreement with your spouse of who will be making mortgage payments, who will be responsible for the upkeep of the home, and who is responsible for other expenses regarding the home such as taxes.
The second option would be to rent out your home or partially rent out your home until your mortgage is no longer in a shortfall. Before you choose this option talk to your mortgage company and be aware of the tax implications and the impact it could have on their mortgage contract. If you have a pre-existing mortgage and have taken on tenants, there is a chance that you could be breaking your mortgage contract without even knowing.
The last option is a foreclosure. If you can no longer afford the home you may be forced into foreclosure and if you have a shortfall, you will be responsible to pay the shortfall to the mortgage company. This situation can severely impact your credit until you resolve the foreclosure. Therefore, when it comes to resolving the issue of a shortfall mortgage on your marital home, this option is the last resort.