How Foreclosure Will Affect Your Maryland/D.C. Divorce

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A foreclosure will not prevent your divorce from being finalized but will complicate the proceedings and cause significant delays. If you have questions related to divorce, the Maryland and D.C. divorce attorneys at The Law Offices of Thomas Stahl are here for you and ready to help.

To explain, when a couple seeks a divorce in either Maryland or the District of Columbia, one aspect of the divorce will be an equitable division of the couple’s assets (and debts). Equitable does not necessarily mean an even split, but to get a general idea, assume that the couple has a house with equity of $100,000 and a financial account with a value of $100,000. In general, after the divorce, each spouse would be awarded $50,000 from the equity of the house and $50,000 from the financial account.

If the house is being foreclosed upon, several complicated issues arise for the Maryland or D.C. divorce courts. The first problem is determining the value of the house (either positive or negative) for purposes of equitable division. As noted above, debts are also subject to equitable division.

But, determining value hinges upon a whole set of other considerations. For example, do either (or both) of the spouses want to keep the property being foreclosed as a home or for other purposes? Further, will there be or are there ongoing efforts to refinance or otherwise avoid the foreclosure while the divorce is pending? If so, what are the costs, which spouse is paying those costs, which spouse is expected to start paying the new mortgage, etc.?

Assume, for example, that Spouse No. 1 wants to avoid the foreclosure and remain living in the house. Let’s also assume that, to avoid the foreclosure, the note/mortgage must be refinanced. If the refinance is being attempted through the current note and mortgage holder, is the bank willing to fully release the other spouse from liability on the note/mortgage? Alternatively, is Spouse No. 1 able to refinance the loan into their name only with a new lender? As can be seen, however, this hypothetical plays out, significant time will be needed, and, in the end, there will be very complicated calculations for the divorce court with respect to equitable division.

A different set of factors are involved if the couple wants to sell the property and avoid foreclosure. Issues here include:

  • Status of efforts to sell the property — how quickly can the sale be completed, and how much is expected to be realized from the sale?
  • If the property is sold, will the couple need to “bring money to the closing” to consummate the sale? — If so, how much is needed, and which spouse is paying those costs?

Another set of factors is generated if the couple decides to “let” the property go into foreclosure (or sign the property over to the mortgage holder). This can create complicated tax issues. For example, foreclosures can result in deficiency judgments and can also create income tax liability if the foreclosure results in “debt forgiveness income” for the spouses as defined by the taxing authorities. The Maryland/D.C. divorce court will have to take those issues into consideration when making a decision about equitable division.

There are further complications that must be taken into account if the property being foreclosed is or was income-producing.

So, as noted above, seeking a divorce while a foreclosure proceeding is pending will create a large number of complications for the divorce court. This will result in more time for the divorce and the need for financial, tax, and accounting experts to tabulate and calculate the various consequences depending on what choices are made by the couple.

Maryland And D.C. Family Law Attorneys

Contact the seasoned and experienced Maryland and D.C. family law lawyers at The Law Offices of Thomas Stahl for more information. We have the skills and expertise you need. We have proven experience with family law for Maryland and the District of Columbia. Schedule a consultation today or call us at (410) 696-4326 or (202) 964-7280. We have offices in Columbia, MD, and Washington, DC.

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