In my practice I work with a variety of specialists in finance and real estate. Their professional advise is useful for folks contemplating divorce. The following was written by Thomas Tribble, a real estate professional who works with couples to explore alternatives when selling a house as part of a divorce.
Options on Dealing with the House
By Thomas Tribble
In better times, when a couple was contemplating a divorce, the main consideration about the house was who gets to keep it, or how are we going to divide the proceeds from the sale of the house? These days the discussion raises the questions of whether or not the house will even sell, will there be any proceeds from the sale, or who has to keep it and deal with trying to maintain it or sell it.
In spite of all the bleak perspective on the market that is being broadcast, houses can still be sold, especially if the owners are willing to do some untypical things to get it done.
The most common approach is to list the house with a realtor and wait for a pre-qualified buyer to come along and relieve the sellers of their responsibility. As long as there is no sense of urgency to sell, and as long as the house is priced to sell amidst the surrounding competition, this is can be a very acceptable approach. However if the sellers do not want to wait for several months to get a potential offer, and they are willing to consider some other options, they can move the process along much more quickly.
The options depend on some specific economic and personal considerations that, in combination, make the approach unique to each case and set of circumstances. Specifically the options revolve around whether or not there is equity in the house, and whether or not the owners are willing to accept terms that may require some time to get them that equity.
In order to determine whether or not there is equity, a comparison has to be made between what is owed on the house and at what price the house can be sold quickly. The first part is straight forward and simply a matter of looking at statements from the first mortgage, second mortgage, and any other lien holders. This will total up all that is owed against the house. The sale price needs to be determined from looking at comparable properties that have recently sold, from comparable properties that are currently for sale, and the amount of time that those properties were on the market before they sold, and how long the current listings have been on the market. In the real estate industry this is called a Comparative Market Analysis. The accuracy of that analysis is critical and needs to include the costs associated with selling. Obviously, the price that is determined will govern which direction the sellers will need to go to achieve their goals.
Whether or not there is equity in the house, one selling partner may want to issue a Quit Claim deed to the other just relieve them self of any concern about the house. While this does not relieve the Quit Claiming partner from their obligation under any mortgage notes they have signed, it does allow the other partner to proceed with the house as they see fit. While I am not an attorney, nor do I play one on TV, the ramifications of issuing a Quit Claim Deed should be discussed fully with your attorney before you do this.
When there is equity in the house, the sellers must determine how much of that equity they can relinquish to sell the house quickly, if that is their goal, which is the next important decision: How quickly does the house need to be sold?
When the house needs to be sold quickly, often a real estate wholesaler is the fastest way to sell. The real estate wholesaler will purchase the house and engineer a deal that is tailored to the circumstances of the divorcing couple. One such transaction is for him to take over the payments on the existing first mortgage, and then issue a note to each individual for their portion of the equity. Both notes are recorded, and both notes receive payments. When the notes are paid off, each person receives their portion without any need for further discussion. This is a very appealing scenario to many couples. Conditions do have to be met with the first mortgage, but this is usually done fairly simply.
When there is no equity in the house, about the only option to relieve the couple from the title is to do a short sale. This is not a quick option, since negotiations have to be opened with the lender(s), and there is a lot of cooperation needed between the buyer, the sellers, and the lenders. However, the process is more quickly handled by a real estate wholesaler than waiting for a retail buyer to come in through a real estate agent.
So, what is the best option? It all depends on the individual circumstances. It depends on the couple. It depends on the condition of the house. It depends on the financing attached to the house. But there are more options available than just to list the house for sale and wait for the market to get around to you. If your goal is to be separated, and the house is one of the obstacles to that, much can be done for the motivated couple that protects the interests of the individuals.