Illinois Divorce With An Upside Down Mortgage by Russell D. Knight

Описание: Illinois Divorce With An Upside Down Mortgage by Russell D. Knight

If you’re facing divorce in Chicago and wondering what happens when your mortgage is upside down, this video will walk you through the real-world legal and financial considerations involved. Russell D. Knight, a divorce lawyer based in Chicago, brings insight from years of work in Illinois family law. He explains how the courts handle homes with negative equity, how marital property laws apply, and what options exist for dividing assets and debts fairly when there’s more owed on a house than it’s worth.

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In Illinois, marital property includes both assets and debts acquired after marriage, as outlined in 750 ILCS 503(a). That means your house, even if underwater, is part of what the court will divide under 750 ILCS 503(d). An upside-down mortgage—where the loan is greater than the value of the home—presents unique challenges. There’s no equity to divide, but the court must still account for the debt attached to the property.

Russell D. Knight walks viewers through the choices available when a house has no net value. If one party wants to keep the home, they may agree to be responsible for the mortgage and indemnify the other spouse. Indemnification, as defined in Black’s Law Dictionary, is the action of compensating for loss or damage sustained. This agreement should be clearly stated in the marital settlement to protect both parties. However, mortgage lenders will often not remove the other spouse from the loan without a refinance, which can be difficult when the home’s value is lower than the mortgage. Knight discusses strategies such as agreeing to attempt refinancing three times a year for up to three years. If refinancing fails, the parties can agree to sell the house, choose a real estate agent, and divide the liabilities accordingly.

When neither spouse wants to keep the house or take on its debt, other options include a short sale or a deed in lieu of foreclosure. A short sale allows the lender to forgive the difference between the home’s sale price and the outstanding loan balance. Knight references the Morse v. Donati decision, which illustrates how courts have handled these situations in past Illinois divorces. A deed in lieu of foreclosure may also be possible, where the borrower conveys title to the lender in exchange for cancellation of the debt, as seen in the First Illinois National Bank v. Hans case.

Courts prefer finality in property division, as reflected in In re Marriage of Hellwig. That’s why it’s important for divorcing couples to create agreements that clearly define how mortgage debt will be handled. If disagreements arise, or if obligations are not met, the court may enforce the terms or allow intervention by other parties, as permitted under 735 ILCS 5/2-408(a) and 750 ILCS 5/403(d).

Russell D. Knight’s approach is informed by his experience from the 2008 to 2014 housing downturn and ongoing contributions to the Illinois State Bar Association. He has also been quoted by NBC News, Newsweek, Inc. Magazine, and Parents Magazine. For those navigating divorce in Illinois, especially with a property that’s underwater, this video provides a practical look at your options and what to expect from the process.

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