Dealing with Divorce in a Down Real Estate Market

Finally coming to grips with the decision to divorce can be stressful enough, but when you add the problem of what to do with the marital home when houses aren’t selling, it can virtually blow up your stress meter.

Many divorce situations find one spouse keeping the home and refinancing the mortgage to pay off the other (also a difficult feat in light of the recent mortgage meltdown).  That may or may not be a good option, depending on many factors.

In situations where the home must be sold, possibly because the mortgage payment is not manageable by one spouse or they are ready to move on and leave the memories behind, trying to sell on the downside may not be easy or desirable.  Selling in a buyers market means that you may take less for your home or risk waiting for a considerable amount time for it to sell at your higher asking price.

Some other options that are available, but not always understood include the Lease Purchase, Lease Option and Subject To methods of buying and selling real estate.  If you don’t need all of the equity in your home at the time of the divorce, these options might be of interest to you.

Of course, each has its pros and cons and as with any matters such as these, I recommend working with professionals like a real estate attorney and RE broker who are well versed in these options.  These methods can have traps to them so you are highly advised not to go it alone.

Lease Purchase– This is where buyers “rent to own.”  Many times buyers in this situation have cash, but credit problems do not allow them to get a mortgage at the present time.  By doing a lease purchase, they usually present a nice chunk of cash for the down payment and are committing to buy your home at a later date, typically one or two years down the road, giving them time to work on repairing their credit issues.  Rental payments may or may not include extra toward the down payment.  There are no hard and fast rules here, everything is pretty much negotiable and allows for creative options on both sides.

Pros – This is an option that opens your market to more buyers.  Sigurd Hoyer, is a licensed Real Estate broker with Real Estate Central in Kennesaw, Ga. (www.sigsblog.com) and has nearly 20 years experience.  He says, “This is the best option for the seller as the buyer is technically obligated to purchase.  It puts more control in the seller’s hands.”  He goes on to explain that this is similar to a tenancy and you should follow the same due diligence as you would with a regular rental including checking references, past landlords, employers and their credit report (remembering that there will most likely be credit issues).

Cons – Remember you still own the property and are still legally obligated to pay the mortgage and any other expenses such as repairs (unless written to the contrary in the contract) on the property.  Make sure that the deal cash flows (covers all costs) or be prepared to pay extra every month out of your own pocket.  In addition, you still have liability on the property so carry adequate insurance.  If the buyer does not purchase, you may have to sue to claim damages.

Next we have the Lease Option – Almost identical in its features to the lease option, the biggest difference is that the buyer has the “option” to buy, rather than the “obligation.”  For those looking to purchase after a divorce this may be a good bet, but if you are on the selling side steer clear as this option puts more control in the buyers hands.

One other option that you may hear about is “Subject To” – This entails a buyer essentially taking over your payments subject to your current mortgage.  Beware of this set-up.  While investors may love this option and there are situations where this can be acceptable, Sig Hoyer advises, “Generally this is a move of desperation and not usually the best option for a seller.  Use extreme caution when considering this.” 

Moving out and moving on with your life after divorce, even in a down market, can happen with a little flexibility and creativity.  Still always work with a real estate professional who is familiar with these techniques so you don’t get burned when it finally comes time to finalize the sale.