You are in the midst of a divorce when you receive an ominous notice from your mortgage lender. Due to financial difficulties, you and your spouse have had a hard time keeping up the monthly payments. Now you have a possible foreclosure to deal with in addition to the end of your marriage.
If you both applied for the mortgage in the first place, then you and your spouse remain legally liable for the debt, regardless of the divorce. You could sell, but the housing market is currently slow in your area, and neither of you would qualify for refinancing right now.
One viable solution is a mortgage modification, which adjusts your loan to make the payments more affordable. This change is typically done by reducing the interest rate, converting a variable interest rate to a fixed one, or extending the term of the loan. If your spouse agrees that this is the best solution, then should you apply before or after the divorce?
Before the divorce
Applying for a mortgage modification while you’re legally married will require you and your spouse to sign the modification agreement, provided both of your names were on the original loan application. Afterward, you will remain jointly responsible for the loan, which may not be a good idea if you’re the one moving out. If your former spouse ever defaults on their end of the deal, then the lender will look to you to pay any arrears.
Choose this option only if you are reasonably sure that your relationship with your former spouse is likely to remain amicable, and they have a profession that supports long-term employment prospects. The last thing you want is to be saddled with unexpected debt ten years from now.
After the divorce
If you are awarded the marital home in the divorce settlement, then you can apply for a mortgage modification on your own, provided the terms of the decree do not require you to refinance the loan instead. Your former spouse does not have to be involved, and it may even be easier for you to qualify on your own.
Why? Because the criteria for modification eligibility includes long-term financial hardship, and many lenders regard divorce as a financially challenging situation. They know that you are assuming a higher debt load in relation to your income when you assume responsibility for the house and are more likely to approve your application if you meet all the other necessary criteria.
If you are planning to divorce and have concerns about your ability to afford the mortgage on the marital home, then be sure to discuss the situation with a New York divorce attorney. Your attorney will recommend the best time to seek a mortgage modification and can even guide you through the transaction to ensure you understand and are comfortable with the terms. Jayson Lutzky has over 34 years of legal experience and has handled thousands of divorces of the years for highly satisfied clients. Call 718-329-9500 or visit MyNewYorkCityLawyer.com/Divorce to learn more.