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Idiocy #2 – That a judge can determine value, equity and therefore a fair and equitable buyout.
Review:
Introduction: Stupid judges harm you more than malicious judges do
Lesson: Ignorance + Arrogance > Stupidity
Idiocy #1: That a person can purchase something which they already own.
Lesson: Know the difference between the purchase of property and the exchange of interest in a property for money.
To the named characters:
I am using real names because I’ve entered that phase of my life when I no longer care to shield the guilty with anonymity. Especially, when the miscreants are headstrong and do great damage to divorcing homeowners. If you make a mistake, you should not be remembered by that mistake. But, if you willfully resist corrective measures that seek to stop or minimize the damage you do to others, I am not willing to “cover” for you. Step up and learn. That’s the way I live my life and practice my craft. Be like me.
Now you’re ready for the 2nd Idiocy. And, it’s a biggie.
Have you ever seen a judge rule: Split it down the middle?
Given two appraisals of the marital residence in a divorce case. One party wants the house and an equitable “buy-out” is being sought. Each party brings their own – independently obtained - appraisal which report values separated by, for example, $50,000 – one reported value is $400,000 and the other is $450,000.
“I’m splitting it down the middle,” says the judge, “it’s $425,000.”
Lawyers tell me that judges have to set value. But, this is not true. It’s a misunderstanding based on an extrapolation from a court’s jurisdiction over the division of assets in a divorce.
By dividing the asset equitably between the parties, a judge is somewhat forced into accepting some opinion of value or declaring their own opinion of value.
But, that is ALL any judge can do –
OR
1 OPINION – Do you mean all we have to go on is an opinion?
Yes. Value is an opinion. But, do you accept just anyone’s opinion? Would you pay whatever the seller of a property told you it was worth? If you answered “yes,” please call me as I have a great deal for you! Of course you wouldn’t. Neither would any other rational person.
But, hear this loud and clear – by accepting some other opinion of value or declaring their own opinion of value, a judge has not set value or made that property actually worth any particular amount.
This must be restated in as many different ways as possible because it is apparently not understood by a great many courts. And, this misunderstanding results in an horrific misapplication of justice.
And, this is why I insist that only 2stupidity rules when judges entertain the notion that they – by the banging of their wooden mallet on a wooden desk – can set value, determine value, make something worth whatever they say it is worth.
I am convinced that their arrogance continues because they rarely see the aftermath of such judgments. Usually people go on, endure the loss (sometimes not even aware of it) and have diminished estates.
One may argue in defense of such judgements – they have to make that judgement of value.
I risk the same misjudgment that Hugo Grotius has unjustly endured for the better part of four centuries when he posited etiamsi daremus Deum non esse, “even were we to accept that God did not exist,” and on the basis of this phrase alone was credited as the progenitor of “secular” natural law theory, a view he did not advance.
Even were we to accept that a judge had to declare value…
Everything depends on how sound that “opinion of value” is, how the opinion was developed.
This is probably a good time to provide a definition of an appraisal from the world of finance.
And appraisal is an opinion of value reported to the client lender by a licensed professional.
Let’s get precise and ask Fannie Mae. Specifically, this mortgage underwriting giant seeks to know the “market value” of the properties it finances. From their “Selling Guide” (June 7, 2023)
Definition of Market Value
Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
Note: Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs that are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable because the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third-party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession, but the dollar amount of any adjustment should approximate the market’s reaction to the financing or concessions based on the appraiser’s judgment.
Here it is again:
Idiocy #2 – That a judge can determine value, equity and therefore a fair and equitable buyout.
First, the details of the actual order issued by Jesus The Second (Jesus Nevarez, II) on August 3, 2023.
So, what’s a court to do and how can the lawyers help?
Educating belligerent judges can be tricky. But, hope springs eternal. Any one of us can educate a fellow citizen on any subject we understand…IF the student is ready to learn.
I suggest your standard rational approach to informing the court.
So, it is up to the lawyers.
Unfortunately, wife’s lawyer (Elizabeth Rivera) wasn’t up to the task and actually argued for her client to get the worst possible deal. Her lack of education regarding mortgage financing was astounding and inexcusable. She had no more curiosity about the facts than did the judge. So, wife had no chance to get a reasonable judgment.
So what about those Defensible Calculations Methods? What are they? How do we calculate equity in a property and an equitable buy-out of spouse’s interest?
From my upcoming book Everything A Divorce Lawyer Needs to Know About Mortgages.
BUYOUT
Value of Co-Parcener’s Interest
Once you have a workable way to determine ACCESSIBLE EQUITY, calculating the buyout should be fairly straightforward.
Here is the judge’s erroneous and indefensible calculation from the above example:
Value $325,000
Balance $127,000
Equity $198,000 X 50% = $99,000
No thought applied. No consideration of transactional costs. No understanding of real estate transactions. No curiosity. No fair-mindedness. No sense at all.
Now, Here is the rational calculation of a buy-out in the case I referred to above.
Even if the property appraises or sells for $325,000 (and don’t forget that there was no reliable determination of value to start with so I am making the assumption that $325,000 is accurate for the sake of illustrating the difference between a reasonable calculation and a fallacious one).
Limits to Financing with Transactional Costs
Value $325,000
Max Conventional Loan To Value Ratio
X 95%
Max Conventional Loan Amount $308,750
Loan Balance $127,000
Transactional Costs (loan closing costs) $ 10,000
Separate Property Claim $ 10.000
Accessible Equity $161,750
X 50% $ 80,875
$18,125 less than the judge ordered wife to pay husband for his so-called “equity” in the property.
Doubt the fairness of the 95% calculation?
Watch this.
What about a sale? What would those numbers look like?
Sales Scenario
Value – Sales Price $325,000
Loan Balance $127,000
Cost to sell – Realtor/Receiver Fee 6% (min) 19,500
Cost to sell – Seller costs (title policy, fees) 3,600
Transactional Costs (loan closing costs) 10,000
Separate Property Claim / Seller Contribution 10.000
Net Proceeds 164,900
X 50% $ 82,450
The Limits to Financing with Transactional Costs and the Sales Scenario calculations are always very close to each other in their final yield of buy-out values.
The judge ordered wife to pay $16,550 to $18,125 more than any sane calculation would have yielded as a fair buy-out amount.
And remember, the judge had no reason to assume a value of $325,000.
But wait, it gets worse. How does one really calculate an “equitable” buy-out?
Simple. What would wife’s net proceeds be were she to sell the property immediately after paying $99,000 to her spouse. It’s not that hard to figure. Here it is:
Sales Price $325,000
Mortgage Balance ($127,000 + $99,000 + $10,000) 236,000
Realtor’s Fees (at least 6%, receivers charge more) 19,500
Sellers Costs (Title policy, et al) 3,600
Net Proceeds $ 65,900
Do you see that? Husband gets $99,000 and wife gets $65,900 (less if there are seller-paid repairs, etc.).
$33,100 more to husband than to wife. $33,100 less to wife than to husband.
In a just world, Nevarez would be writing a check to Wife for no less than $33,100.
So, circle the wagons if you want. Meanwhile, divorcing homeowners are getting royally screwed six ways to Sunday in certain courts. And, I know they are getting screwed in the 321st. Such a shame.
Nevarez’s private conversation with me at his “bench” indicated far more serious misconceptions and ignorance, not to mention arrogance. He tried to reverse his earlier boisterous tone and appear accommodating. He tried to recruit me to “work in his court.” “Man, I want you to work in my court,” he said. Even by then, I could see that “working in his court” meant to participate in his little cabal of real estate “professionals” in a scheme to force litigants to do business with the cabal.
No thanks.
I have always despised such “good ol’ boy” networks, doing business with a “wink and a nod.” I have never needed or wanted money bad enough to join such a group. It disgusts me to the core of my being.
Just to be sure, I did not agree to “work in his court” or to apply to work in his court. Nor did I state any desire to “work in his court.” That’s silly if not criminal. I don’t need to “work in his court.” What the hell does a judge mean by “work in his court” anyway? I have a business that I’m already working in and on. And it’s NOT working in his court. I don’t need him to do business. I’ve never needed him to do business.
Most importantly, I do not want him forcing people to do business with me. And, I surely am not going to give him money or favors or donations to his campaign for such gratuitous measures.
I want you to connect me with your clients – with any divorcing person who owns a home or wants to own a home. I will then earn their trust or they will take their business elsewhere. That’s the only dynamic I work with. For over 20 years that’s the way it’s worked. I’m totally disinterested in cabals, secret networks and ass-kissing circles of back-scratching buddies.
My referral partners (attorneys, mediators, a few judges, realtors, past customers, friends and acquaintances) NEVER pressure their clients, contacts or friends to do business with me. I’ve always assumed that’s the way business works.
For some reason, that’s the only type of professionals who gravitate to me (and I to them). I wonder why that is.
Thanks for reading. More to come.
NOTES
1 OPINION. Here are some quotations from an actual appraisal. The word opinion occurs 22 times.
The purpose of this appraisal is to develop an opinion of the market value of the subject property, as improved.
In my opinion, the market value of the property as of May 5, 2022, is $446,000.
The purpose of this summary appraisal report is to provide the lender client with an accurate and adequately supported opinion of the market value of the subject property.
Based on a complete visual inspection of the interior and exterior areas of the subject property, defined scope of work, statement of assumption; and limiting conditions, and appraiser's certification, my (our) opinion of the market value, as defined, of the real property that is the subject of this report is $446,000
Support for the opinion of site value (summary of comparable land sales or other methods for estimating site value) See Attached Addendum.
OPINION OF SITE VALUE $70,000
SCOPE OF WORK:The scope of work for this appraisal... The appraiser must, at a minimum: (1) perform a complete visual inspection of the interior and exterior areas of the subject property, (2) inspect the neighborhood, (3) inspect each of the comparable sales from at least the street, (4) research, verify, and analyze data from reliable public and/or private sources, and (5) report his or her analysis, opinions, and conclusions in this appraisal report.
Appraiser’s Certification, The Appraiser certifies and agrees that:
4. I developed my opinion of the market value of the real property that is the subject of this report based on the sales comparison approach to value.
13. I obtained the information, estimates, and opinions furnished by other parties and expressed in this appraisal report from reliable sources that I believe to be true and correct.
14. I have taken into consideration the factors that have an impact on value with respect to the subject neighborhood, subject property, and the proximity of the subject property to adverse influences in the development of my opinion of market value.
16. I stated in this appraisal report my own personal, unbiased, and professional analysis, opinions, and conclusions, which are subject only to the assumptions and limiting conditions in this appraisal report.
17. I have no present or prospective interest in the property that is the subject of this report, and I have no present or prospective personal interest or bias with respect to the participants in the transaction. I did not base, either partially or completely, my analysis and/or opinion of market value in this appraisal report on the race, color, religion….
19. I personally prepared all conclusions and opinions about the real estate that were set forth in this appraisal report.
SUPERVISORY APPRAISER'S CERTIFICATION: The Supervisory Appraiser certifies and agrees that:
1. I directly supervised the appraiser for this appraisal assignment, have read the appraisal report, and agree with the appraiser's analysis, opinions, statements, conclusions, and the appraiser's certification.
2. I accept full responsibility for the contents of this appraisal report including, but not limited to, the appraiser's analysis, opinions, statements, conclusions, and the appraiser's certification.
Scope
The scope of this appraisal… Information, estimates, and opinions furnished to the appraiser and contained in this report were obtained from sources considered reliable and believed to be true and correct.
The reported analysis, opinions, and conclusions are limited only by the reported assumptions and limited conditions, and are my personal, unbiased, professional analysis, opinions, and conclusions.
Support for the Opinion of Site Value
Site value is based on valuation estimates obtained from the Central Appraisal District, area agents and brokers,…
Reasonable Exposure Time
My opinion of a reasonable exposure time for the subject property at the market value stated in this report is: 3 – 6 months.
2 stupidity – not a mere slang insult. Stupidity is the result of ignorance paired with an arrogance which refuses to exchange that specific ignorance for education.
3 If a judge declares a value significantly less than a property’s true market value, of course a person will purchase it at that price. But, the judge has then diminished the estate of a citizen without due process or even a charge of wrongdoing.
I think if people don't agree on thier own during divorce and a judge has to decide, nobody's happy. But I think maybe this judge needs an investigation into thier morality. Many judged do.