Divorce and Foreclosure in New York: How to Protect Your Home and Credit

Divorce is hard enough without a mortgage you can no longer afford. In New York, many couples going through a separation find that one income can’t cover a payment that two incomes used to handle. Missed payments pile up, letters from the bank start arriving, and nobody is sure who is responsible for what. This guide explains, in plain language, how divorce and foreclosure can collide in New York and what options homeowners have, including a short sale.

Why divorce puts so many New York homes at risk

A mortgage is a contract with the lender, and a divorce agreement is a deal between two spouses. Those are two separate things. A judge or a settlement may say that one spouse keeps the house and pays the mortgage, but if both names are on the loan, the bank can usually still look to both borrowers if payments stop. That is why a late payment by one ex-spouse can hurt the other’s credit and push the home toward foreclosure.

Common problems we hear about include:

• One spouse moves out and stops contributing, and the other can’t make the full payment alone.
• Both spouses assume the other is paying, and months go by before anyone notices.
• The spouse who stays can’t qualify to refinance the loan into their own name.
• Legal fees and the cost of two households drain the savings that might have covered the mortgage.
• The couple can’t agree on whether to keep or sell the home, so nothing happens while the arrears grow.

Keep paying attention to the mortgage during the divorce

The single most important step is not to let the mortgage slide while the divorce plays out. Once you fall behind, late fees and arrears grow quickly, and your options narrow. If you are already behind, our guide on what to do when you’re 1, 3 or 6 months behind on your mortgage in New York walks through what typically happens at each stage.

A few practical steps:

• Open every letter from the lender or servicer. New York lenders generally must send a notice before starting a foreclosure case, and that notice lists free housing counseling agencies.
• Call your servicer early. Ask what hardship options exist. The New York State Department of Financial Services (DFS) stresses that waiting reduces your options.
• Tell your divorce lawyer about the mortgage status. The divorce agreement should address who pays, what happens to the house, and what happens if payments stop.
• Keep records. Save statements, payment confirmations, and copies of everything you send the servicer.

What if your name is on the deed but not the loan?

Sometimes the spouse who keeps the home was never on the mortgage. The Consumer Financial Protection Bureau (CFPB) has reported that homeowners in this situation often get the runaround from mortgage companies after a divorce: repeated document requests, wrong information, long delays, and pressure to refinance at higher rates.

Under federal mortgage servicing rules, a person who receives ownership of a home through a divorce may qualify as a “successor in interest.” According to the CFPB, once the servicer confirms that status, the homeowner should be able to get information about the loan and be considered for options to avoid foreclosure. The rules are detailed, so talk to a housing counselor or lawyer about your specific situation, and know that you can file a complaint with the CFPB if a servicer won’t respond.

Your options for the house during a divorce

Every situation is different, but divorcing New York homeowners generally look at a few paths:

• One spouse keeps the home. This usually means refinancing or assuming the loan, which only works if that person can afford and qualify for it.
• Loan modification or other workout. If the household can afford a lower payment, the lender may review you for a modification or repayment plan.
• Selling the home. If there is equity, a regular sale can pay off the mortgage and split what’s left.
• Short sale. If the home is worth less than what is owed, a short sale lets you sell for less than the balance with the lender’s approval.
• Foreclosure. Doing nothing usually leads here, which tends to be the most damaging outcome for both spouses.

For a side-by-side look at two of these, read Short Sale vs. Foreclosure in New York: Which Is Better for You?

How a short sale can work in a divorce

A short sale can give both spouses a cleaner ending than a foreclosure. Instead of the bank taking the home through the courts, the home is sold and the lender agrees to accept less than the full balance. Because both spouses are often on the deed and the loan, both usually need to cooperate and sign paperwork. That can be hard during a divorce, but a short sale is often one of the few things both sides can agree on, since it ends the shared debt on the home.

Things to ask a lawyer or tax professional before you agree to a short sale:

• Whether the lender will waive any remaining balance (the “deficiency”), and whether that applies to both borrowers.
• Whether any forgiven debt could have tax consequences for you.
• How the short sale fits with your divorce agreement and the division of other property.

Abraxas Foundation’s short sale program works directly with the homeowner’s bank on the short sale. We do not buy homes, we do not list homes, and we do not take a cut. Our role is to help homeowners through the process with the lender, at no cost to the homeowner.

Help with moving costs: the Short Sale Relocation Grant

After a divorce, many people have to set up a new home on a single income, often with little savings left. Everyone in our short sale program is eligible to apply for the Short Sale Relocation Grant. It is not a loan and is never paid back. Depending on your needs, it can help with:

• Movers or a moving truck
• A security deposit or first month’s rent
• Short-term storage
• Utility connection fees
• Temporary housing

The grant is only available when Abraxas handles the short sale directly with the bank. Grants depend on eligibility and available funding, and applying does not guarantee approval.

Watch out for scams that target people in crisis

People going through divorce and money trouble are frequent targets for foreclosure rescue scams. DFS warns homeowners to be wary of anyone who asks for an upfront fee to modify a loan or stop a foreclosure, anyone who asks you to sign over your deed to “save” the home, and anyone who tells you to send mortgage payments to them instead of your lender. Learn more in our post on foreclosure rescue scams and deed theft in New York.

Free resources in New York

• New York’s Homeowner Protection Program (HOPP): (855) 466-3456, for free housing counseling and legal services referrals.
• NYC residents: call 311 to be connected with help.
• New York Courts Help Center: foreclosure resources and information on court settlement conferences.
• CFPB: information on your rights with mortgage servicers and a place to file complaints.

Free help with divorce and foreclosure

If divorce has left you behind on your mortgage, you don’t have to sort it out alone. Abraxas Foundation provides free foreclosure help to New York homeowners, with no fees, and can refer you to free legal assistance and housing counselors. If selling is the right path, our short sale program works directly with your bank, and everyone in the program is eligible to apply for the Short Sale Relocation Grant to help with the move.

We don’t have a physical office. Our team meets homeowners at their homes. Call us at (929) 346-5734 or reach out through our contact page.

Helpful official resources: NY Courts CourtHelp: Foreclosure and NY DFS Foreclosure Consumer Bill of Rights.

Abraxas Foundation Inc is a nonprofit organization. We are not a lender, real estate broker, home buyer or law firm, and this article is general information, not legal or tax advice. Relocation grants depend on eligibility and available funding, and applying does not guarantee approval.