Is this a good way to get rid of a house?

Question

Hi! Some of you may remember me. I'm getting a divorce and we have a beach house that's $150K underwater. We tried short sales, but that was out. He came up with an idea that we work as partners with an LLC. No! Now he wants me to "give" him the house so he can start his own LLC. A legal document would be written absolving me from any obligations.

Sounds great, since the house won't grow to its worth for a long time. But while I can remove my name from the deed, my name will still be on the mortgage.

Should I go for this?

Sounds great, since the house won't grow to its worth for a long time. But while I can remove my name from the deed, my name will still be on the mortgage.

Should I go for this?

Dion DePaoli · Answer

Why is this house not included in your divorce decree or is it?  If the house is a non-asset, you might think about going back and having the home included in the divorce.

I don't fully understand what the logic is behind the "work as partners with an LLC" or the second one where you give him the house to start a LLC.  What does the LLC have to do with anything your vantage point?  Do you believe it will function as a shelter from foreclosure?

In lieu of those answers, he can not absolve you from the mortgage or the debt owed since he is not the mortgagee.  I am not sure if you are both on the mortgage or just you.  What you are trying to get done is not a bad idea, which is remove yourself from the loan and deed but you have to go about this the correct way.

If you remove yourself from the deed without the mortgagee's (lender) consent you may trigger the "Due On Sale" clause which essentially will call the entire mortgage due.

You need the mortgagee (lender) to remove you from the mortgage formally and then you can remove yourself from the deed after or simultaneously.  This is why it is important to have your divorce decree and ensure the decree dealt with the house.

The lender does not have an obligation to do this but it is worth a try.  Contact your mortgagee (lender) and explain the divorce and send them a copy of the decree.  Inquire about a "Release of Liability" from the mortgage in conjunction with the divorce decree.  Some lenders will comply with this for a small fee.  Sometimes if the home is upside down or the other spouse does not qualify on their own, the lender will deny the request.

Secondly, if the lender shoots you down.  It is worth asking about a modification, if you and your ex qualify.  This will not remove you but you will know if you can get any principal reduction to get a little closer to market value which will open your options up.

If both of those fail, your stuck for now.  I would not quit claim the property to your husband since you still have liability for the home.  This will force both of you to work on this until it is resolved.  Bare in mind, you will both be liable for payment until you are removed via sale or a release from the mortgagee.  Also as your move forward in life, you will have to have proof your ex is paying the mortgage while it is in your name in order for you to remove it from your debt to income calculations to qualify for a new mortgage.

Dion DePaoli · Answer

The refinance lender will need you removed from title.  You can tell him that the lender can push that condition to closing and just sign at the closing of the deal.  You should not have to do this in any sort of advanced time period, your divorce decree is your evidence for all of that.  The new lender will need the divorce decree to see how the judge ordered the division of marital assets.

Kama Ward · Answer

Either you or your attorney need to consult a real estate attorney. 
Get the house included in the settlement- you have much more leverage now while all the moving parts are on the table.

If it was me, I'd talk to a real estate attorney where you are as well as one in NC.  Maybe there is a way to force the sale. If this is the case, he might come up with the money even if he "doesn't" have it. I'm guessing it's around somewhere, from your other posts indicating high income  & assets etc.  If he really doesn't have it, maybe bankruptcy or foreclosure would have to happen.  ??

If you take your name off the deed, you have no control, yet you will still be liable for the full amount of the loan (not just 1/2). Yikes!
 
I know you are tired and worn down- but cross your t's and dot your i's now, or it will come back to bite just when you thought you had moved on!

Be very clear and firm with your attorney that you want to have no ongoing dealings with your ex.

Bill Gulley · Answer

I'm thinking your divorce attorney didn't earn much as what should have happened is that you give up the second home, have him assume the debt under court order and that you be removed from the title and the mortgage, while they usually don't, they can when specifically addressed. The court can order this and the lender will comply. Your attorney didn't seem to go there. I suggest you go back to court with that as a request. You can make up whatever to the ex from other assets or arrangements.

Break it off and walk away, IMO. Bankruptcy may be his option. Maybe he can sell it on an installment and get out or get a better property manager tha can lease it year round as a residence.

Good luck

Michael Lauther · Answer

Jennifer: "But for obvious reasons, I'm not going into business with him. The current idea is to get me off the deed only and have a document drawn up stating that I am absolved of all responsibility. Then he starts his own LLC."

I am not advocating what form of business you and your husband should adopt if any. I am only suggesting that by virtue of your failed marriage you are already partners in this property and your sighing over your interest to him only gives him absolute control of an asset that will have the potential to put you both further in debt and your only protection is an unsecured promise to hold you harmless.

You may not want to deal with your x but unless your lender will let you off the note you need to retain control to protect your interests.

Brian Levredge · Answer

The quit claim is kind of a standard thing for refi's in a divorce.  My wife had to do that prior to getting her settlement money from her ex who was refinancing to buy out her interest.  It should be something the attorney's can handle.

As an aside, don't be surprised if the refi comes in below what you are expecting.  That could be either on the bank (for any number of reasons) or a tactic your husband uses to get you to take less.  And while I don't how much MI marital law differs from CA law, if he's wanting to keep the house for himself, you have to agree to that amount.  It's up to him to find a way to get it.  If he can't, the judge can order a partition sale of the property to satisfy that demand.  Of course there's no guarantee the house will get as much on the open market either.

Jon Holdman · Answer

The LLC piece is irrelevant.  If you rent it out you're "in business with your ex" whether you form an LLC or not.  The LLC might give you some asset protection (or not, since the property and loan is in your names), but it has zero impact on the tax and business arrangement.  None.  Zip. Nada.  If you're keeping it and renting it, you're in business together.  With or without the LLC you have a partnership. The partnership will need to file a tax return and send each of you a K1 for your share of the gains or losses.

I would recommend you spend some time and write down how you're going to run the business.  At some point, there is going to be a big expense and you'll have to battle out whether or not to spend the money.  So you're going to have to sort this out either now or later in the heat of a battle.

You're stuck.  He doesn't want to sell and you can't without his cooperation.  Is there any way to change the decree to require it be sold?

Don Konipol · Answer

You don't need an LLC to rent the house out and take deductions.  You can do this in your own name. Your ex is probably concerned with liability resulting from the rental.

you can't force your ex to sell and contribute money at closing to make up the difference between sales price and what is owed.  the situation is that you and your ex have a business disagreement; you want to recognize a loss and he wants to wait until the market recovers to hopefully break even or regain equity.  Neither is right or wrong, just a difference of desires.

Your choices are a few, but none particularly attractive.  Implications of any particular strategy can have unforeseen consequences.

Since your ex is unwilling to contribute money to the sale, your best bet may be to rent the house out to cover the mortgage, insurance and taxes, and wait for rising values to bail you out.  Without your ex's consent, you won't be able to accomplish your goal of ridding yourself of the hassle and liability associated with this house and mortgage.

Steve Babiak · Answer

The sheriff's sale is where the foreclosure is carried out.  Assume the one party has been removed from the deed and the mortgage by divorce decree, so that the other party has "won" the house in the divorce.  Often, that "winner" is unable to make the mortgage payments (only one income now, not two like before), and ends up facing foreclosure.  Occasionally, nobody in the divorce gets removed from the mortgage, so both parties end up with a foreclosure as a result.

Dion DePaoli · Answer

IMO, if you can get out without the foreclosure that is better than getting foreclosed.  It seems the cards are in your favor per your divorce, just stay resilient and keep doing your homework.

Is this a good way to get rid of a house?

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