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Divorce and the family residence: what if you are underwater?

Six or seven years ago, the role of the family residence in a divorce property division was often easily resolved. Before the real estate crisis and Great Recession, it was much more common for couples to have equity in a home to tap. And it was far easier for a spouse who moved out of the house to qualify for another mortgage.

Today, however, the financial landscape is far different for people in Illinois and across the country. Nationally, millions of homeowners who bought at what proved to be the wrong time are underwater, owing more on their mortgages than their houses are worth. And qualifying for a new mortgage can depend in many cases on selling the old house first - something that has become a much more difficult task than it used to be.

To be sure, there may be options available to get out from under a mortgage. Mortgage modification is one. A short sale is another. But lenders have not historically helped homeowners much in making them either of these options achievable.

To be sure, the real estate market is finally starting to pick up somewhat. But the fact remains that the role of the family residence in a divorce is much more complicated than it once was.

Still, in at least some cases going through a divorce may actually lend support to a homeowner's attempt to persuade a lender to agree to a mortgage modification or short sale. Much depends, of course, on the type of mortgage and individual circumstances. But the financial challenges of divorce could help in showing the bank that a short sale should be granted.

Source: St. Louis Post-Dispatch, "Short sales: boon to buyers; a lesser evil for sellers," Jim Gallagher, June 9, 2013

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Goddard & Malmquist
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