Short Selling in Divorce
For most divorces, a driving objective is closure. One or both of the parties has generally reached the state of being “over it”. Child custody, division of assets, and support issues are challenging. But there is another issue which can rain frustration on a divorce like a monsoon, and that is the disposition of real estate which is “upside down” or “under water”. If the sale of a marital residence will not bring enough money to satisfy the mortgage(s) encumbering the property title, then it affects and “clogs” the process of closure. It is bad enough for two harmonious and functional owners to deal with owning a home with “negative equity”, but when the home becomes so “small” that only one of the parties can live in it at a time, it multiplies the financial hardship and often results in plummeting credit ratings and exhausting trips back to court. Legal fees mount. Time is lost from work. Economic opportunities are lost.
According to William F. Burnside, Esq., Virginia litigator and experienced domestic relations practitioner, the best time to deal with a short sale is NOW, IMMEDIATELY, BEFORE even finalizing the stipulation or property settlement agreement. Once a petition is filed in court to sever the marital bonds and parties move out, the short sale process can become emotionally explosive. Parties can take advantage of one another and even deliberately hurt one another (shooting oneself in the foot?) to reciprocate pain and wrongs committed. When both parties are liable on the mortgage(s) to the home, both will suffer the credit damage. All the explanations of who was required to do what in the Stipulation Agreement will do little to begin credit repair or healing. Also, once the parties are set up into two separate households, you guessed it, the amount of financial documentation to support the short sale doubles!
But if parties under financial pressure or facing the possible need of “a new residence for one of them” are proactive and take steps to sell their primary residence in short sale . . . BEFORE the animosity of divorce sets in, there is cooperation and a shared goal to obtain. Among the most difficult short sales for our law firm to process are those involving nearly completed or recently completed divorces. BOTH borrowers on a loan must generally cooperate completely, including the tedious production of documents for the short sale negotiator. If the short sale application is well under way before one party moves out, then the chances of completing a successful short sale improve exponentially. In a few cases, parties have found that just starting or completing the short sale lightens the financial burdens pressurizing the marriage and we have seen reconciliations follow on the heels of a short sale.
It is counter-intuitive for parties in divorce to take time to commence a short sale when other issues in the marriage seem so much more emotionally compelling. They fear that working on the short sale will divert them from the goal of quick closure on the marriage. But in most cases, an orderly and early pursuit of a short sale can be an excellent catalyst to bring on the end of the rainy season of divorce.
Bottom line! Be proactive about seeking short sale help from a qualified law firm and get the process well under way while there is still some cooperation and simplicity in the economic relationship.