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It's kind of a joke here in Texas - we think we're our own country. Our unique equity lending laws are illustrative. No other state regulates equity lending as does Texas. Seriously, Texans for the most part are great Americans. I've been here almost 18 years now and I'm having a great time. But, there are real differences between mortgage financing in Texas and mortgage financing in Not-Texas. And...
...I'm getting this question more and more:
Noel:
I hope you are doing well. I have a relative who is trying to finalize her divorce and her husband needs financing to buy her out...and there are some student loans and things that need to be refinanced. I am not handling her divorce because she lives in Pennsylvania. Can your services be used in other states?
Thank you for your time.
Sincerely,
One of Texas's Great Family Law Attorneys [That's not how he signed it; I just added that part and took out his real name.]
Here is my Answer:
I’m getting this question more and more. So, by way of updating you, we are expanding to California in January with my Divorce-Lending Specialty. So, my team and I can definitely handle divorce-related mortgage financing all over California.
However, the mortgage bank I am with also does business in most of the other states. So, sure – I can help with most situations. I refer the loan to one of our originators and oversee the mechanics of the divorce settlement and how it affects the loan.
The question I want to address is how a divorce buyout is handled in these other states, especially when other debts need to be financed.
If you’ve taken my course on Owelty liens, you know that there is a virtually proprietary method I use to include financed debt with a buyout. It’s part of my “secret sauce” so I won’t get too detailed. It would be insufferably boring anyway. And, I’ve actually explained it in other formats and newsletters. I’ll just say that it’s one more reason why clients need to call me BEFORE their divorce is final. We need to talk sooner than later.
I explain in my Owelty seminar about Texas Home Equity financing and how it severely limits the amount of cash that can be taken out of a property and how to avoid those limitations by using proper Owelty financing…getting a mortgage refinance loan through me of course.
If you remember, I say something like “Texas is the only state that has this sort of law which defines equity financing and regulates it. No other state,” I go on to say, “has these legal restrictions.”
And, this is true in a legal and technical sense.
However, the mortgage industry (through its major underwriting engines like Fannie Mae, Freddie Mac, HUD for FHA, VA) DOES have limitations. And, at this time, the “other state cash out” guidelines are pretty much as restrictive as Texas’s legal limitation guidelines. In other words, what the other states do not regulate by law, the mortgage industry does by lending guidelines.
Here’s an example. Before the 2008 financial meltdown, Fannie Mae allowed cash out financing (in 49 states) up to an LTV (Loan To Value) limit of 90%. Freddie Mac allowed up to 85%. Texas’s own special category of cash out loans, set the limit at 80%. However, when the mortgage market began a meltdown, one of the casualties was high LTV cash out financing. The mortgage industry itself lowered the maximum LTV ratio in cash out financing to 80% on primary residences. Thus, what is regulated by law in Texas is mirrored (for the time being) in other states in terms of the (LTV) math.
This means that great care must be taken, in all the other states as well, to formulate the buyout very precisely and uniquely in the divorce settlement. For example, in the case above (question from attorney), if student debt or other consumer debts were paid off in the financing, the borrower could not access the top 20% of her home’s value. However, using my unique and non-patentable (shuckie darns) strategy, the borrower could include debt in a divorce buyout and access up to 95%, 97.75% (or in the case of VA, 100%) of her home’s value.
Summary. Texas has legal limits to cash out (equity) financing. The mortgage industry has its own limitations on cash out financing. Both [sets of] limitations must be dealt with in divorce buyouts depending on the state your property is in. More importantly, a specially constructed buyout must be designed by a Divorce-Lending Specialist (certified by The Mortgage Institute) in order to be sure the divorced client’s loan has the highest probability of closing.
Thanks for reading. Remember, you can email me your questions at [email protected].
Noel Cookman
