Married parties have a homeowner or other estate with a value less than the amount secured by the home loan. This is often referred to as "upside down" in your home. If a spouse hides a divorce estate, can they ask for credit against other savings or assets for their belief in this negative equity?
The Visible Answer
There has never been a published (or unpublished) court of appeals or supreme court decisions in Michigan that directly addresses this latest innovation. It appears that the circuit court judges are not prepared to give the party claiming that this potential liability is a credit against the other assets. There are many factors that contribute to these decisions.
- The parties are equally liable for the note or underlying debt. Even if there is a clause of no risk or indemnification, if the party taking the home then steps in and stops paying, the note holder (bank) can sue both parties for the loan. Divorce litigation does not force the bank to remove one of the parties from the same-related liability and if the parties have more home debt than the amount, in most cases the bank wins & # 39; united to remove a name or allow reproduction. Thus the party that does not keep the house may be held liable despite the divorce judgment and the holding of no harm clause can be of no use if the wife who keeps the house is “inseparable”. Finally, if this situation occurs and the spouse who keeps the home is given more property to support them for this charge, then the other spouse is facing double loss, loss of property and bankruptcy removal.
- The court held that there was a greater cost to the housekeeping party than to the value. The court looks at the holder & # 39; the value of the property rather than the value of the property. The court held that if the person was prepared to maintain the home despite apparent negative equity it would have to be of greater value to that person than the public buy-in, possibly because of the children's school & # 39; s, some home amenities. or the party really wants & # 39; Don't move.
- The court may look at the house like the stock market, its value now but rising. If a party wants to stay home, then they have to take the risk of losing as well as the potential benefit of the profit.
There may be other reasons why courts may not want to provide credit for negative equity, but these are some of the possible reasons.
Negative Equity Issue Solutions
- The parties may sell the house and come to the table with money from the joint fund for the deficiency between the proceeds of the sale and the general debt.
- One party can keep the house and then agree to sell it for a set number of years to wait and see if the market goes and then split the debt or the profit. The parties must decide what will happen if the spouse is liable for the repayment of the debt deficit and how taxes are handled and deductions for repayment of the debt.
- Parties can sell the house. In short sales, one of the parties will include the difference between the sale price and the loan as income on their tax return. Parties must devise a mechanism for sharing taxes on reported income.
- Finally, both parties can walk away from home, allow foreclosure and both can face the bank filing a complaint against them to collect the deficit in the future.
These are just a few potential ways to deal with this solution. Divorce parties need to be creative but practical because there are many potential falls in this emerging area of divorce law.