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For the most part, I am in the position of qualifying divorcing homeowners for mortgage financing. I work with the party who must refinance and remove the spouse from the loan liability as well as include a buyout to spouse – that famous Owelty lien.
But, what does that transaction look like from the other side?
I took a call from a great attorney yesterday who was in mediation. His client was giving her interest in the home to the spouse subject to an Owelty buyout. He had the best question: How can I be assured that my client will get paid and get off the mortgage note?
Note why this is a great question. Any lawyer can ask “how do we write up a buyout in the decree and how to we require the refinance?”
Those are great and important questions. And I deal with the answers to those questions 24/7, or so it seems. You can find a lot of material on this blog about those questions. I love dealing with those issues.
But, that simply addresses the issue of what words go on white paper.
The most important question is
That’s why this lawyer’s question was a great one. What people really need is the right words on white paper but even more so, green money in their bank account. They can’t exchange their divorce decree for groceries.
Well, the right answer to that question - How can I be assured that my client will get paid and get off the mortgage note? – is to view the transaction as a typical real estate sale.
Your client is, after all, selling their interest in a property to a buyer (their spouse). There is a buyer and a seller.
As a mortgage finance guy, when I am helping one of your clients purchase a house, I have to produce a loan approval statement. The “approval letter” is attached to the offer to purchase and given to the listing or selling agent.
Inevitably, I get a call from the seller’s agent asking about the approval statement. The get really nosey and ask all sorts of questions which they [should] know we can’t answer. Questions like:
The only legitimate, relevant question is: Is your buyer approved for the financing?
Then there are the statements calculated to put me on the defensive. “Who are you…I’ve never heard of you before?” It’s not as hard to answer that one any more. But, for a while there, it was off-putting because, fame in the market didn’t translate into performance in mortgage lending…and I knew that.
Why is that? Why is the seller’s agent so persnickety about the buyer’s loan approval? It is because they are getting ready to effectively remove the property from the market – take it “off the market.” Technically, they can entertain other offers so it’s not really “off the market” but as soon as a contract is accepted, the multiple listing service will show that property as “under contract.” This has the effect of taking it out of play. After all, why would a realtor take time to show a property to a new buyer if that property is already “taken?”
The sellers just want to know that the buyers can perform on their contract offer.
Through the years, one of the most innovative marketing strategies for mortgage originators has been to offer sellers to prequalify any of their potential buyers. The attraction for sellers and their agents is that, they get a statement from a source they trust about the loan and likelihood of a successful closing. The mortgage originator benefits because he has a chance to compete for that loan, to get more business.
The entire enterprise is built around assurances of financing.
So, in a mediation or negotiation about the house, why not require an authentic, trustworthy statement of loan approval? If your client is “selling” their interest in the property to the other party, shouldn’t you and they know whether or not their spouse can pull it off?
Simply tell them that you’re fine with the deal but before it’s officially accepted, you need to see a loan approval statement from a verified source. You could even say “we want Noel Cookman to pre-qualify your client – he can make sure it’s a doable deal.” See 3 paragraphs up. ?
You have every right to require (demand may be a bit strong) a loan approval statement that is comprehensible, verifiable and dogmatic. If you have connected me to your client before mediation, I provide you/them with a loan approval statement. Turn the tables - require it from the "buyers."
You’re the seller. Don’t just “take the house off the market” so to speak without having good reason to trust that your client will get paid and/or be removed from the mortgage liability as hoped.
Noel Cookman
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