Foreclosures & Judgments

FORECLOSURES AND SET ASIDE JUDGMENT

In San Diego, there have been many foreclosures in recent years Some of these foreclosures were properties which were confirmed to one spouse in a divorce or legal separation case. When this property is confirmed, the debt is normally confirmed as well however the creditor is a third party and is not bound by the terms and conditions of the marital settlement agreement. This article focuses on the division of real property and the consequences when this asset is no longer worth the community property valuation for division purposes. This article does not focus on debt or bankruptcy.

In many divorce and legal separation cases, there is a division of assets [and debts] and not all assets and debts are divided one half to each spouse and, instead, there is an equalization. This is, in most instances, the most economical and expedient way to divide assets since the sale of assets diminish its value in many instances and it is better for the parties to keep as much of the value of the assets as possible and not to incur costs of sale for each item. This happens in real estate in many cases as the costs of sale can be thousands of dollars. For example, a 5% commission on a $400,000 house is $20,000. Many spouses prefer to keep the $20,000 and the real property and make an equalization payment. This payment can be in cash or can be an equivalent in other assets which have an agreed upon community property value. Of course, this is never down to the penny [or dollar or hundreds of dollars in many cases since attorney fees and time in court and aggravation lead to compromises and negotiations] however there are values and equalizations.

For real estate, most family law attorneys recommend an appraisal by a licensed appraiser. Some accept “comps” from realtors. Sometimes, the value is agreed to by the parties themselves. In almost all cases, the spouse who is confirmed the real property is confirmed the debt and must refinance and take the other spouse off the note. On rare occasions this is not the case. For community property purposes, the value of the house is the fair market value minus the debt. Assuming that this is a positive number [as was the case for most of the last fifteen years in San Diego due to rising home prices] this was then equalized.

The assets which are used to equalize the community property value of the residence can include the following: furniture; jewelry; antiques; art; coin collections; cars; boats; trailers; saving accounts; checking accounts; credit union accounts; cash, tax refunds; life insurance with a cash surrender [not term]; stocks; bonds; secured notes; mutual funds; retirement; pensions; profit sharing; annuities; 401K; 403B; individual retirement accounts; deferred compensation; accounts receivable; unsecured notes; partnership and other business interests.

Unfortunately, many of the values of residences have decreased and not increased in 2008 and 2009 to date of the posting of this article. As such, the benefit of the bargain of keeping the house and trading for other assets is not fair or equitable in hindsight. As has been said many times: “hindsight is 20/20" and the law does not normally permit judgments to be set aside except in rare circumstances. In family law, there is a code which discusses the grounds to set aside judgments and there are very limited circumstances and there are also very strict time limits. Most motions to set aside judgments are denied. One time limit is in default judgments under the Code of Civil Procedure Section 473 which imposes a six month time frame. Another time limit is for marital settlement agreements and judgments under the Family Law Code Section 2122 which imposes strict requirements and time limits.

This motion must be brought in the same court house under the same case number as the original judgment and is very technical in the procedural posture. The court houses in which these motions are heard include the main family law court house downtown, the Madge Bradley court house downtown and the court houses in El Cajon, Chula Vista and Vista.

One of the grounds is as to stipulated or uncontested judgments which includes almost all marital settlement agreements which is the majority of family law judgments. In this section, one spouse can file a motion within one year of the date of entry of judgment based on either a mutual or unilateral mistake whether this is a mistake of law or mistake of fact. If one spouse equalized with property which is still positive in value and believed that the house would continue to be positive in value and would not have made the agreement without this unilateral mistake of fact, then there is a ground for filing this motion. In fact, this is applicable to not only real property but also any asset which has diminished in value and which the spouse who equalized did not believe it would diminish such as the reduction in value of 401K and IRA accounts among others. Many spouses, mistakenly in retrospect, did not believe that their asset would be foreclosed or diminish in value by 40% or more.

This is an extraordinarily complicated and technical area of the law. These set aside motions are disfavored under the law since the law favors judgments being enforced and not changed. In essence, once a “deal” is made, the Court will enforce. This article is a discourse on this extremely narrow and limited exception to this general rule however this is a factual pattern which is more and more prevalent. There are also instances when a motion for setting aside a judgment can result in sanctions and attorney fees for the filing party in addition to the denial of the relief and all motions must be made in good faith and with the facts and law in accordance with the relief being requested. Our firm instructs you to consult [and of course retain] an experienced licensed attorney before filing a set aside motion.

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