Legal Question in Family Law in California

Best to try and work with the bank in a short sale if neither spouse wants the home.

I disagree with Ms. Kock. As a family law attorny, I can understand her answer because it is the simple and direct solution from a family law standpoint. As a matter of real estate law and financial managment, however, it is not. Short sales are of no benefit to the owner/borrower. The idea that they are is a myth propogated by the banks (who get more than they would net after foreclosing and having to carry and then re-sell the house) and the real estate brokers and agents (who don't get a commission on a foreclosure, have to work harder to get REO business, and get smaller commissions on bank's REO sales). Fair Issacs, which owns the proprietary algorithms that all the credit reporting agencies license to do their scoring, is on record as saying there is no meaningful difference in what a short sale versus a foreclosure does to your credit scores. Although it takes some detailled financial planning and a little crystal ball gazing to be sure, it almost never makes economic sense to keep a house that is worth less than is owed on it. There may be other personal reasons to keep it, but plain economics is not one of them. Therefore it is very unlikely that a court would enter a judgment that retquired either party to keep paying on the house. If one WANTS to keep it then things get tricky. The other spouse isn't going to want to give a property distribution credit for the debt with no offsetting asset, and a court is unlikely to order that considering the debt could just be wiped out by allowing a foreclosure. In addition, the spouse that doesn't want to keep the house is going to be unwilling to stay on the debt, but the spouse that does want to keep it is not going to be able to refinance unless they have the cash to pay the difference between the existing debt and the loan that would be obtainable on current value. So the simple answer is just agree to allowing it to go into foreclosure or negotiate to just deed it to the bank. If one spouse is just dead set on keeping it, they will have to expect to provide guarantees to the other spouse regarding indemnity from default and negotiating a somewhat complex set of terms for the Marital Settlement Agreement to deal with the debt and title to the property.