Our house is an Underwater property

Unfortunately there is no easy solution when your house is “underwater” and you are going through a divorce. There are, however, some ways to approach the dilemma in a more creative fashion depending upon the current relationship between you and your spouse and the level of trust between you. If there is sufficient trust, an easy solution is for one of you to remain in the house and be responsible for the mortgage and other expenses, promising (in writing, preferably in a Marital Settlement Agreement or Stipulated Judgment) to pay all expenses on a timely basis so that the other spouse’s credit is not impacted by late payments and deficiencies. For couples who opt to do this, provisions can be included to allow for a forced sale if the mortgage gets behind or if there are substantial deficiencies. This provision would need to be spelled out clearly so that there is no question as to what the rights and responsibilities are for both of you. The provisions should also require the spouse living in the home to make efforts to refinance the mortgage within a certain period of time.

For example: Jim and Jean have a home which is underwater. Jim has sufficient money to pay the mortgage and wants to remain in the house. Jean agrees to move out. They draft a provision which requires Jim to pay all the mortgage, insurance, property taxes, repairs, etc. on the residence and immediately begin exploring refinance options to remove Jean’s name from the mortgage, a process that needs to be completed within 12 months. If Jim gets more than 2 months behind in the mortgage payments, Jean has the right to request the sale of the family residence. This works well with divorcing couples who have trust in one another.
Understandably, however, there are couples who – at the point of divorce – do not have sufficient trust. If the spouse hoping to keep the house cannot immediately refinance the house, the best option would be to consider a short-sale of the family residence or simply sell the residence and share the loss.

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