Effects of Foreclosure on Spouse

Long recognized as the reason for many divorces, financial stress has increased significantly during the Great Recession. While overall the divorce rate has decreased, it has actually increased in couples with greater than a high school education who have gone through foreclosure. Often the couple has pooled their resources to buy their home and both the prospect and reality of the losing the home can be too much to bear. Additionally, the downward spiral of social mobility, as well as the shame associated with foreclosure, can be too much for a relationship to withstand.

The Financial Effects of Foreclosure on Relationships

Often times when couples find themselves facing trying financial situations, such as the loss of a job or devastating illness, they will shift the responsibility for debt obligations to the spouse with the weaker credit score. They do this in hope the spouse with the stronger credit score can carry the family through the rough times by having access to credit. In most circumstances, this strategy fails and the designated “fall guy” is in a position from which it is almost impossible to recover. This leaves one partner likely to feel resentful, while the other feels guilty, a perfect set up for conflict.

 

As a couple faces the reality of foreclosure and starts to look for a new home, more stressors are likely to arise. Since most rental properties require credit checks for all adult members of the household, it is not likely the family will be able to secure a lease in a neighborhood similar to where their home is located. Usually, families will have to move into a much more urban setting or a more rural setting than the area in which they formerly lived. In either circumstance, the couple’s relationship will be under more strain because of the disruption of their social support systems.

 

Short Sales Are Less Stressful Than Foreclosure

 

Most financial advisors recommend that couples do whatever is necessary to avoid foreclosure. With the recent changes in Fannie Mae and Freddie Macs requirements for short sale applications, couples can avoid much of the financial damage that occurs when a home goes into the foreclosure process. For example, instead of having to wait until their mortgage goes into default, a couple can now arrange a short sale while they are still making payments on their home. While this will not prevent the loss of the home, maintaining a good credit record will make it easier to rent a property in a similar neighborhood to where they have lived.

 

Short sales also allow the couple more control over the process, which allows them the opportunity to avoid having their children change schools in the middle of a semester. Additionally, the couple will not have the stress and shame associated with having to go through the short sale process, which will decrease the likelihood of conflict within the family.

Many people mistaken rule out putting their home on the market as a short sale because they have heard of lengthy wait times for responses from lenders. The Federal government now requires lenders to respond to a short sale application within 30 days, and make a decision within 60 days. This removes the stress on the couple since they do not have to deal with a lengthy period of uncertainty, thus they can start on the path to their new life together.