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What to do when facing foreclosure during a Texas divorce

One of the most disconcerting situations that you can find yourself in as you take on the challenges of a Texas divorce is to find out that your home is going to be a problem to divide during your divorce. Many spouses look forward to selling the home and dividing the equity made in the sale of the home or buying the other spouse out of the home to remain living there after the divorce. However, finding out that your home is going to be foreclosed is a scary thought to encounter as you take on the challenges of a divorce simultaneously. 

Deciding what you are going to do with your family home is usually something that is decided near the end of your divorce. At a minimum, you can expect that your divorce is going to take two months to complete given that from the day you file your divorce until the day that the divorce decree is signed by a judge must be no fewer than 60 days. However, most divorces take longer than this to complete so you have time to consider what your options are going to be with your home. Do you want to sell the house? Does your spouse want to keep the house and buy you out? Or, do you both agree to just sell the home and move on with your lives? This is the big question that the two of you need to answer. 

That question can be answered in direct negotiations with your spouse. If the two of you can be civil with one another then you can always try to talk the issues out yourselves and not wait to use attorneys. Having an attorney isn’t legally necessary in the context of a divorce- although it is a great decision in most cases to have a lawyer on board. However, if you have a rare divorce where the issues are simple you may consider not hiring one. I’d say that if you have a house, you definitely should invest in a lawyer. This is your biggest asset and one that you cannot afford, literally or figuratively, to mess up. Even if you hire a lawyer, you and your spouse are still able to negotiate on these subjects directly with one another. 

Next, you and your spouse can work on this subject via negotiations through your attorneys. Attorneys are effective negotiators because your lawyer and your spouse's lawyer are not going to have the emotional investments in your case that you and your spouse do. Sometimes even looking at your spouse the wrong way can set back negotiations. This is why hiring an attorney can be helpful. Make your offers and counteroffer through your attorney and allow him or her to do the dirty work for you. Just don't stop negotiating. Work with him or her to settle the case rather than having to go through a trial. 

The point of last resort when it comes to negotiating a divorce is mediation. Mediation for final orders involves hiring a family law mediator to try and settle your case. Most of the time the mediator is going to be a current family law attorney or even an ex-judge. That mediator will work with you and your spouse to convey settlement offers and counter offers as well as to help the two of you understand the stakes of your case and many times work out creative settlement arrangements which may not have occurred to either of you previously. In all, mediation is effective at settling a high percentage of divorce cases that otherwise would have required a trial. 

Finally, a trial is a final option for your case when it comes to working out a conclusion to your divorce. We have all seen trials of various sorts as portrayed in television and movies. Evidence is offered and admitted, testimony is taken, and a judge issues a decision. When it comes to the family house the most pertinent part of a trial is that of property division. The judge will determine how best to divide your community estate between you and your spouse. If your house truly is in danger of being foreclosed upon then the judge will determine what can be done (if anything) to avoid a foreclosure and get the house sold. 

As we start to discuss what can be done with a home that could be foreclosed upon, the final determination will rely in part on whether you want to keep the house, whether your spouse wants to keep the house, or whether there is equity in the home as far as a sale is concerned. Selling a house in a divorce is not complicated- in fact, it is the preferred method for dealing with a house in a divorce if the decision is left up to a judge. However, foreclosure will complicate your case to a degree and that is what today’s blog post from the Law Office of Bryan Fagan is going to focus on. 

How to move forward when you have a foreclosure on the horizon during a divorce?

Working with your spouse in anticipation of a divorce and the foreclosure, process sounds like a nightmare. It is not an ideal situation to find yourself in. Many people when going through a divorce would prefer to hide behind their lawyers and let the people in suits work the case for them. However, that is not necessarily the best way to proceed. If you and your spouse can do so the best way to proceed in your case is to work together to solve your problems. Let the attorneys help along the way when necessary but supply the framework of negotiations yourselves and go from there. A foreclosure will change the calculus of your negotiations to a certain extent, but it will not disrupt things completely. 

There are some options that you and your spouse short-sort through when dealing with a potential foreclosure on your home. You can try to sell the property and then use the proceeds of the sale to pay off the mortgage. This is the most straightforward, logical, and simple option that you can choose from. You would not have the foreclosure on your credit history or report and would not suffer the penalties that are associated with a foreclosure. The key to this is that you would need to be able to be in a position where there is sufficient equity in the home to pay off the mortgage. If you have a large mortgage, have a home that has not appreciated much in value recently, and are behind on paying the mortgage then you are going to find yourself in a difficult situation. 

Next, there is the option of a short sale. A short sale can be achieved after working with the mortgage company or lender to allow for the sale of the home despite the mortgage being worth more than the home. The lender would be agreeing to accept a mortgage payment amount that is less than what you owe on the mortgage. The lender would then forgive whatever else is owed on the mortgage and you could go along your way and not have to worry about the remaining portion owed on the loan. This is an option that can take a long time to get set into place. The lender would need you to formally ask for a short sale and then would need to consider your financial situation in addition to the home and the housing market, as well. 

If you want to give the deed to the lender instead of foreclosure, then you legally transferring the title of the home to the lender. In exchange for doing so, the balance of the mortgage would be canceled. This is a tricky option because, for one, there is no guarantee that the lender will accept the deed instead of foreclosure. There is nothing that requires the lender to accept your offer. Next, this is something that will go on your credit report and be displayed on your credit history. If we are going to judge the situation purely by how much harm will be done to your credit score, then foreclosure is a worse situation to find yourself in. 

The other option would be to file for bankruptcy instead of allowing the house to be foreclosed upon. This is a truly last-resort option. For one, the divorce cannot proceed until your bankruptcy is over. A delay of this sort is something that would certainly hinder your ability to put your marriage behind you and move on with your life. Another thing is that for as long as your bankruptcy stays on your record (usually five years) you will not be able to qualify for another home loan. Even renting a place to live can be tricky if you have gone through bankruptcy. Do you need a security clearance for your job? That, too, can be impacted by whether you have filed for bankruptcy. 

What happens if the foreclosure goes forward

The last option would be to simply allow the foreclosure to happen. The property can be sold at an auction by the lender and the deficiency (if any) would still be owed by you after the auction has occurred. In Texas, there is a benefit to having the deficiency in a sale or deed instead of foreclosure forgiven. This will not happen in foreclosure, and you will end up facing a judgment from the lender once the foreclosure sale has gone through. You would likely need to talk with a foreclosure attorney or real estate attorney about this option moving forward. He or she can advise you on what the situation is for each option considering your specific circumstances. 

Most people after a foreclosure do not give up on their dreams or aspirations of home ownership in the future. Rent is by and large seen as giving away your money or paying someone else's mortgage off for them. Why not, these people will reason, keep the money in your bank account and instead purchase a home for yourself. Even after going through a foreclosure home ownership is a good deal for those who are ready to take the plunge. 

When weighing these different options, you probably think about which one will be the most advantageous for you when it comes time for you to apply for a new mortgage. After completing a short sale or a deed instead of foreclosure. After a short sale, it will take you two years to be able to apply for and be awarded a mortgage once again. When you go through a foreclosure that means waiting seven years for a mortgage. 

Are you responsible for the mortgage debt or is your spouse?

This is the million-dollar question for our purposes. What we are trying to figure out here is which person, you, or your spouse, is going to bear the responsibility for the failure to pay the home mortgage. Texas is a community property state. This means that property acquired during your marriage is eligible for division by a family court judge in most cases. The same can be said for debt. This is especially true of debt that is attached to your family home. This will be a crucial debt that you will become liable for under the law. As a result, you should want to do whatever you can to avoid a situation where there is a loan on your home that needs to be paid due to your not having done so for an extended period. A mortgage is not the actual document that notes your promise to repay the loan made to you. That document is known as a promissory note.

One of the interesting questions that we as family law attorneys receive from time to time is what the situation is when only one spouse has signed the promissory note as well as the mortgage. If you have signed either of these documents but your spouse has not then you are the one who will be legally responsible for paying back the note. When the foreclosure process begins then you going to be the one who would suffer the brunt of the foreclosure. The home may technically be community property but in the eyes of the law, you would be the one who would be held accountable for your not having paid the note on time and in full according to the payment schedule you have worked out with the lender. 

Finances after a divorce

The other thing that you need to keep your focus on after a divorce has to do with keeping your finances in order no matter what. You can just decide now to be the sort of person who lives on a budget, keeps an eye on their finances, and ultimately pays closer attention to where your money goes than you have previously. This is not to say that the foreclosure is happening because you were careless with your money. However, it is simpler to assume that a foreclosure has occurred on a home owned by people who got in over their heads when it comes to purchasing a home that they could not afford.

Having a budget is where you need to start your analysis. If you do not have a budget, then you cannot expect to be able to move forward with any degree of confidence with your finances. How would you ever expect to be able to get your arms wrapped around your finances if every dollar did not have a job to attend to? The situation that you run into if you do not have a budget is that the dollars that you have ended up going out the door before you realize what is happening. The beauty of a budget is not that it constricts you. Rather, you are permitted the budget to spend your money freely knowing where each of your dollars are going. At the beginning of the month, you can assign each dollar a job and then see to it that the dollar can go do its thing. That way you are not wondering where the money is going each month. 

From there, the rest of your finances can fall into place. Living on less than you make, taking second jobs to pay debt or attorney's fees and the list goes on and on. I think budgeting is the first step you can take post-divorce to truly turn over a new leaf when it comes to your finances. However, all the budgeting in the world won’t save you from a foreclosure that was set into motion years ago when you took out a mortgage that you couldn’t afford or lost your job out of nowhere. 

Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan

If you have any questions about the world of Texas family law, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free-of-charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas family law as well as about how your family's circumstances may be impacted by the filing of a divorce or child custody lawsuit. 

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