Here are the issues I found in your message, which I discuss below:
- Community property
- Creditors and divorce
- Making Homes Affordable Program
Community Property States
You mentioned you reside in California. California is a "community property" state, which means that many assets and obligations of one partner created in a marriage become "community" assets or obligations. By extension, this can mean that one spouse can be held liable for many of the debts of the other spouse even if his or her name is not on the accounts which resulted in the debts. The other community property states are Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin and have similar, though not identical rules to the one I just cited.
Since the mortgage loan incurred was to refinance the marital home and build or purchase a home for you, the debt would still likely be considered to have benefited the marital community. Therefore, both spouses may be liable for the mortgage. IF the parties are living in a community property state AND the debt was incurred during their marriage for the benefit of both spouses, AND a spouse is sued and a judgment is rendered for a specific amount owed, the judgment can be collected by wage garnishment against any defendant included in the judgment order singularly or simultaneously. The garnishment amount is normally 25% of net income (that is, after withholding) but this varies from state to state. The creditor does not have any duty to "even out" the judgment liability between the spouses. A creditor has the legal right to collect 100% from either spouse, whichever is more convenient for them.
Creditors and Divorce
Creditors are not bound by a divorce decree. If your spouse does not comply with the divorce decree, your legal recourse is to file a lawsuit against your ex-spouse for a breach of contract. Your damages would be the amount of any judgment taken against you, if such a judgment occurs.
As a practical matter, even in community property states, many creditors do not go to the trouble of suing both spouses, as doing so tends to complicate the legal process involved in obtaining a judgment. However, this does not mean that a particularly aggressive creditor will not pursue all of its available rights to collect a debt.
One important disclaimer for non-California readers: Community property laws are unique to each state -- no two states share the same laws. The discussion above regarding spousal liability is meant to provide general information about community property as a theory. Your state's laws may vary from the general theory. Therefore, it is important to consult with an attorney in your state who can review the details of your situation and give you accurate and precise advice about your rights and liabilities under your state's laws.
Now I turn to your options should you or your spouse default on your mortgage payments.
In 2009, the Obama Administration created the Making Home Affordable (MHA) program. A 17-page document titled Modification Program Guidelines outlines the 2009 provisions for trial loan modifications. An eligibility MHA questionnaire helps homeowners determine if they may qualify. This program has two components: 1) mortgage refinancing through Home Affordable Refinance Program (HARP); and 2) mortgage modification through Home Affordable Modification Program (HAMP). There are provisions that also include homeowners with second mortgages (liens) or even third mortgages. HAMP Borrower FAQs and HAMP Factsheet answer basic questions on the program. The Making Home Affordable Program Web site provides eligibility information, how to request a modification, and additional facts.
The MHA HAMP overview page is describes succinctly the requirements that borrowers must meet to be eligible. In a nutshell, HAMP is designed to help homeowners and servicers avoid foreclosure by modifying the terms of the loan to make the mortgage payments affordable for the long-term.
The HAMP qualifying criteria include:
- Borrower is delinquent on their mortgage or faces imminent risk of default
- Property is occupied as borrower’s primary residence
- Mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties.
The HAMP overview page contains information about eligibility, program availability, and steps to take to process a HAMP request, including links to a request form, IRS 4506 form, and verification of income checklist.
HAFA alternatives are available to all HAMP-eligible borrowers who either:
- Do not qualify for a Trial Period Plan
- Do not successfully complete a Trial Period Plan
- Miss at least two consecutive payment during a HAMP modification, or,
- Request a short sale or deed-in-lieu.
HAFA is complex with numerous guidelines set by the Treasury Dept. These new guidelines do not apply to loans by Fannie Mae, Freddie Mac, FHA or VA because these programs have their own short-sale programs that vary from HAFA.
HAFA provides incentives to mortgage lenders (servicers), seller, and other lien holders. There are deadlines that the mortgage lender and subsequent lien holder have to follow to provide timely progression on the sale of the property. HAFA simplifies and streamlines the short sale and deed in lieu process by providing a standard process flow, minimum performance timeframes, and standard documentation.
California Divorce Mortgage Recommendation
Discuss with your ex-spouse why there is an issue with the loan modification being put in only his name. You may have to sign some other inter-spousal transfer documents, however, if the home in question is to be your ex-spouse’s. If the issue is that your ex-spouse does not qualify for the modification, then you should explore the other options listed above. Speak with your divorce attorney or a California attorney experienced in divorce and property to determine the best course of action.
I hope this information helps you Find. Learn & Save.