Divorce Mediation and Mortgage Debt

How does the mediator handle mortgage debt in reaching a divorce agreement? This is an important question because a mortgage or a home equity line of credit is often the largest marital debt up for consideration. The easiest solution is to sell the property and the mortgage debt is paid off from the proceeds of the sale. Like everything else in divorce, the problems multiply once you depart from the norm.

What happens when one party stays in the house, the other party moves out, and the first party is late on the mortgage payments? The nonresident party will find his/her credit negatively affected. I have had some success in advising the non-resident party to pay the mortgage directly as part of the overall settlement. Another problem that can surface is the non-resident spouse may experience difficulty in buying his/her house when the title report reveals that he/she is on another mortgage.

It is at this point when the mediator typically suggests refinancing the mortgage. If the spouse who is remaining in the home has sufficient income to qualify for a mortgage, he/she can refinance and pay off the old mortgage, removing the non-resident spouse’s name from the mortgage. Refinancing is the best solution, but it is not always an alternative. Some spouses will simply not qualify. In that case, the mediator should consider insertion of a clause in the agreement that allows the first spouse so many years or months to attempt to refinance, and if unsuccessful, then the home will be sold in a stated period of time.

If you wish to schedule an initial consultation, please contact me at 212-605-0435 or 516-280-3123.