I am divorced for 3 years. The settlement agreement states that I will live in the home (owned by both of us, since we did not want to sell at time of divorce) and I'd be solely responsible to pay the mortgage (which I have). It also states that my ex is solely responsible to pay for a second he took out on our home. At one point, only he was on the original loan but we refinanced and added me to the first mortgage. Thus, my name is not on the second.
He lost his job months ago and is about to file for bankruptcy. Our settlement agreement states that I am held harmless for that 2nd loan. Do I have any recourse against not having the bank take the house if he files BK?
I don't know what steps to take to protect myself and stay in the home, or avoid loosing equity.
Chapter 7 Bankruptcy Attorney
You have recouse against your ex-husband if he violates the divorce decree but no protection against third parties like the banks. You should contact them and let them know what is happening but in all likelihood they will start whatever proceedings they will start only after he files bankruptcy.
The divorce agreement, decree or judgment supposedly settled the rights and obligations between you and the former spouse. However, it does not change the obligations each of you had with third parties who were not in Court when you got the divorce.
The ex-spouse may refuse to make payments to credit card companies, car financing companies, mortgage companies, etc. Your ex may even file for Bankruptcy.
Depending on the law in your State you may have an action against the ex-spouse, and you may even be able to sue the ex-spouse if they file for Bankruptcy and have their obligation to you declared “non-dischargeable”.
Unfortunately the divorce or the ex’s Bankruptcy does not relieve you of any obligations you had to these third parties.
See a lawyer right away!
Disclaimer: This answer does not constitute legal advice. I am admitted in the States of New York, New Jersey and Massachusetts only and make no attempt to opine on matters of law that are not relevant to those three States. This advice is based on general principles of law that may or may not relate to your specific situation. Facts and laws change and these possible changes will affect the advice provided here. Consult an attorney in your locale before you act on any of this advice. You should not rely on this advice alone and nothing in these communications creates an attorney client relationship. The opinions expressed herein are those of the author only and the fact that he has worked as an Assistant District Attorney; State Supreme Court Clerk; Special Assistant United States Attorney (Hawaii); Assistant Cornell University Counsel or Judge Advocate, United States Marine Corps should not be relied upon to assume that these statements reflect the policy of these organizations.
Criminal Defense Attorney
The hold harmless clause is meaningless if your husband is bankrupt and has no money to reimburse you for losses you suffered because of his second. If he's really going to file and you want to protect the equity in your home the only solution is to pay the second as well as the first. If your husband lists the second as a liability to be discharged then you will have to negotiate a loan assumption with the bank to save your home.
This is why a property agreement that leaves your financial affairs intertwined is not a good idea. In fact, I'm surprised a judge signed off on it.
The problem here is that your ex doesn't seem to have to have the ability to hold you harmless regarding the 2nd. An indemnity agreement is only as good as the finances of the person agreeing to it, and your ex was left with sole responsibility for a loan that was secured by your house, which requires you, in effect, to guarantee his payments to actually keep the house.
You should contact your family lawyer that helped you with the divorce, if you had one, and see if you can get this addressed by the family law judge, assuming that judge retained jurisdiction. If you had no lawyer then, you need one now. There are also family lawyers in each court that can help you for free.
It may also be advisable to contact the lender on the 2nd to explain this situation to make sure they don't foreclose.
Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.
I agree with the other posts in the sense that an indemnity agreement is only as good as his finances. If your goal is to save the home, then you should continue to make payments on the second. If your home is upside down and the second is essentially unsecured debt, you might be able to negotiate a lien release for a lump sum payment to the lender, but would have to have the funds available to do so since they would not be interested in a payment plan. Depending on your financial situation, bankruptcy may give you the leverage to accomplish this. Tough spot to be in.
Mr. Larkin is a CA licensed bankruptcy attorney and is located in San Diego. His response here does not constitute legal advice and does not create an attorney/ client relationship. The response is in the form of legal education and is intended to provide general information about the matter in question. Many times the questioner may leave out details which would make the reply unsuitable. Mr. Larkin strongly advises the questioner to confer with an attorney in their own state to acquire more information about the specifics of their case.