Texas Land Attorney

Divorce and the Hidden Credit Dilemma

Divorce is an unfortunate occurrence that is extremely common. Though much of the pain associated with a divorce occurs throughout the actual mediation and trials, there is often a dormant pain that can appear, sometimes years later. Unfortunately, many divorcees do not recognize this problem until it is too late.

With home ownership at record levels, most divorces involve the division of property where one of the parties will be receiving the community homestead. The homestead is often encumbered by a Mortgage and both parties are liable for it. The Mortgage would have been obtained, in most cases, by considering the combined incomes of the parties.

When a divorce occurs, the Mortgage company is not normally made a party. For that reason, the court cannot relieve the liability of either party to pay the Mortgage. Even if the property is awarded to one of the parties and a Deed of Trust to Secure Assumption is filed, the party “relieved” of the liability is still technically liable to the Mortgage company.

An extremely common side effect of a divorce is foreclosure. This is because the receiving party of the property is accustomed to managing the home with two incomes and now only has their own.

When a foreclosure does occur, sometimes the first notice of it to the relieved party is just prior to sale, a time when remedying the default may be impossible. A foreclosure can shatter ones credit scores for years.

Another possible addition to the foreclosure is a deficiency judgment. This type of judgment occurs when the property sold at foreclosure does not bring about a significant enough price to fully cover the indebtedness. When this does occur, a deficiency judgment can be sought against the debtors for the difference. This judgment can be applied against both parties, regardless of the fact that the Family Court relieved one of financial responsibility for the home.

The solution is simple. When the community holds real estate encumbered by a Mortgage, a relieved party should always insist on the sale of the real estate or the immediate refinance of the property by the receiving party.