Edward R. Weinstein, Esq.

If You Agree To Refinance Your Home In Your Divorce, Be Sure To Comply Or Else You May Lose It Altogether!

A vast majority of divorces here in New Jersey involve equitable distribution of the former marital home. Often, either the husband or wife would like to retain the home and “buy-out” the other party. Both attorneys shall then engage a New Jersey real estate appraiser to determine a fair market value for the home. At this point, the lawyer for the spouse who is being “bought out” is concerned that their client’s name be removed from the mortgage. This protects their credit score and also enhances their ability to obtain a new mortgage so that they may buy their own new home. Furthermore, this is typically the way that this spouse receives their fair share of the equity in the home. Meanwhile, the other attorney needs a copy of a new “draft” deed to present to the bank in order to effectuate the refinance process. Ultimately, both lawyers shall coordinate things so the one spouse finalizes the refinance while the other ensures that their client receives confirmation that their name has been effectively removed from the mortgage and receives their money.

HOUSESPLIT

However, what happens when one party will not cooperate with refinance, even when it is in a court order? In case of L.H. v. D.H., Judge L.R. Jones, J.S.C of the Family Part, Superior Court of New Jersey (Ocean County) set the record straight, and held that in such a situation the court can step in and grant equitable relief, including but not limited to: ordering the home to be sold, granting the innocent spouse power of attorney to put the home on the market for sale through a realtor at a recommended price, and removal of the defaulting spouse from the home, especially if he or she obstructs the realtor’s access to the house or any other material aspect of sale. In other words, as the wife in this case refused to go through with the refinance, a New Jersey Family Court judge ordered that the house be listed for sale immediately. And if the wife does not cooperate with the sale of the home, then her ex-husband shall have full control. The following facts and legal analysis shall be illuminating.

Husband and wife, referred to simply as L.H. and D.H. in the written opinion, divorced in 2012 after twelve years of marriage. The marital home was jointly owned and secured by a mortgage with both their names. In the written settlement agreement, the parties mutually agreed that the wife would maintain and keep the house, and the husband would transfer his interest in the home to the wife. Further, the husband’s attorney would hold that interest in escrow until such time that the wife refinance the mortgage in her name. The wife had nine months from the date of the agreement to comply. D.H. never did refinance the mortgage. L.H.’s name remained on the mortgage and note for three years. During this time L.H. did pay the monthly mortgage, but was late from time to time.

In 2014 D.H. attempted to get a new mortgage for a house of his own, and discovered that his credit score and ability to obtain a favorable mortgage rate were impaired because his name was still on the now outstanding mortgage from the prior marital home. In April 2014 he filed a post-judgment motion to: (1) enforce the settlement agreement and compel the sale of the marital home to pay off the mortgage: (2) to give D.H. the status of attorney-in-fact so that he could put the house on the market and sell it; and (3) remove his ex-wife from the home if necessary.

The court started its legal analysis by noting the growing financial significance of credit reports, scores and creditworthiness in people’s lives. Judge Jones, referred to the recent case of Cameron v. Cameron, and said that the “relevance of credit ratings following divorce cannot be overstated.” Against the backdrop of the recent and severe economic downturn in the United States, the court reasoned that a positive credit rating and score is one of the most valuable and important assets someone could possess. A negative credit score can have a disastrous effect on someone’s financial health, and can effectively destroy any chance of obtaining a loan, either at a favorable rate or at all, for purchases like a house, car, and tuition, while also potentially and simultaneously limiting the individual’s healthy financial growth for years. A good credit score is especially important after a divorce, because very often it is necessary for one to financially rebuild and reorganize his or her life. Furthermore, when two parties divorce and mutually agree to a settlement agreement where they allocate responsibility for payment of a mortgage, car loan, credit cards, or any other debt, the debt technically still remains in both parties’ names. A creditor is not a party to any such agreement, and is not bound by it. Therefore, a creditor can continue to hold both spouses responsible for the balance.

One ex-spouse could easily damage the other ex-spouse’s credit report and score, by either intentionally or unintentionally failing to make payments on time. Repeated late payments or non-payments may devastate the other ex-spouse’s credit rating. A poor credit score can damage someone in numerous ways including, the ability to obtain a loan, creditworthiness, economic reputation, potential loss of employment opportunities, and legal fees required to fix credit problems. These negative marks can stay on a credit report for years. In L.H. v. D.H, the husband’s credit report continued to reflect that he was still legally responsible for a loan of $200,000. This could weaken his credit score and ability to borrow money for his own needs. As a court of equity, the Superior Court of Ocean County could not overlook the fact that the wife was not complying with, and was in breach of her obligation in the matrimonial settlement agreement to refinance the mortgage. There is a strong public policy supporting the use of settlement agreements in family court and the enforcement of the same. A court of equity can only use its discretion to decline to enforce a settlement agreement when the enforcement would be unfair and inequitable. In this case however, L.H. did not show in any way that enforcement of the agreement would be unfair or inequitable under consideration of all the facts and the totality of the circumstances.

Judge Jones ordered that the marital home must be sold, because L.H. had still not refinanced and satisfied the note and mortgage which burdened D.H.’s name and credit. The judge reasoned that the result was fair and just because L.H. had three years to refinance, but failed to do so. She simply did not have any reason whatsoever to fail in this regard. Therefore, the court ordered that within thirty days the parties must list the house with a mutually agreed to realtor. If they failed to agree upon a realtor, they would be forced to use Century 21 Realty. Furthermore, if L.H. failed to follow the terms of the order and failed to put the house on the market for sale, the court could appoint D.H. with limited power of attorney to sign the listing agreement. The realtor would be required to recommend a listing and selling price. The parties would only be able to deviate from the realtor’s recommendation if they mutually consented to their own listing and selling price. But, if only one of the ex-spouses objected to the realtor’s recommendations, then that party would be required to apply to the court with a motion or order to show cause to prove with credible evidence why the realtor’s recommendations are unreasonable. Judge Jones further ordered that while the house was on the market, L.H. would be required to maintain the home and make all mortgage, tax, and home insurance payments on time, to prevent any further damage to her ex-husband’s credit report. If the court finds that she is failing to reasonably cooperate or is acting to block or stall the sale, then the court may order additional relief upon application, and if necessary remove her from the home.

If you or a loved one is contemplating a divorce, please contact my office to learn how we may help you.