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Here are simple tips on how to cite the ASSIGNMENT OF DEBT in a divorce decree. They may seem uber-simple and virtually inconsequential. But, you will see that they absolutely save time and needless hassle for clients, their attorneys and paralegals. They help you proactively clarify essential elements of debt assignments. This could save court time, help to avoid needless filings, assure client happiness with your over-the-top performance. You don’t have to tell them that I told you. Just tell them “I’ve learned through much experience that taking 2 minutes right now will save you hours later and maybe even save you needless expense, not to mention the hassle of sifting through paperwork, calling credit card companies, asking your soon-to-be ex for documents and files, etc.
Remember, debt is half the equation in that all-important Debt-To-Income (DTI) ratio. It’s also part of the legal requirement (federal law) that a lender must verify the borrower’s ability to repay (ATR).
Still, these are simple nitty-gritty tips that help you get it right the first time – saving you and your clients time, money and effort. These are probably not practiced by any of your family law colleagues.
Introduction. All I need to say is that when it comes to mortgage qualifying, certain things are cut-and-dry. Things like numbers and dollars. This means that the smallest omission in the debt assignment portion of your decree could become the mole hill that turns into a mountain.
Is it the end of the world if you don’t get this right? Probably not.
Will it frustrate your clients if you don’t get this right? Probably yes.
Will it slow things down and possibly cause your client to miss a deadline like “refinance to close within 90 days of final entry of decree?” Yes. Too often than I want to remember.
Does it make things a little easier for we who are doing the loan. Yes. (So, this is admittedly in our self-interest. But, if it helps us, it helps your client; and it moves us closer to our goal of mitigating the insane costs of financing in this era. Don’t get me started…).
Tip #1
Especially for revolving account (e.g., credit cards),
Why and How?
Almost universally, divorce decrees will assign revolving debt by citing the last four digits of the account number. Also almost universally, creditors report the revolving debts using ALL NUMBERS EXCEPT those last four digits.
A debt will look like this in the decree: Chase Visa ending in 6543
while the same debt on the credit report (and in their application) will look like this: JPMCC 4321 9999 5555 [last 4 digits, maybe more, missing]
Without a statement (which sometimes is not that revealing either), no one knows the full account number.
Get it? When the underwriter matches the assigned debts in a divorce decree to the debts as reported on the credit report, it needs to match perfectly. Unless we inform the person preparing the decree debt assignments, it will not match.
Only in an event like a divorce does this matter in mortgage underwriting. It makes sense when you think about it. In run-of-the-mill financing, the debt as reported on the credit report counts against the borrowers. Period. The borrower would need some other documented allowance for the exclusion of a debt from their qualifying ratios. That’s another topic I intend to cover.
In divorce, we have an assumption that all debt – recorded and unrecorded could – in theory – be assigned to either party. So, assigning the exact debt to the intended party is a deeper level of underwriting. Not complex or anything like that. Just another level. So remember, we are trying to streamline underwriting so as to mitigate the mounting costs of mortgage lending.
The fix is simple. The client (now, our borrower) produces a statement or matches the account to their credit card, provides us with the full account number and we recommend that the decree say:
JMPCC account beginning with 4321 and ending in 6543
BAM. Done. Simple. Still secure.
When accounts have more or less than 16 digits, the same principle applies. Use “Account number beginning with…and, ending in…”
Tip #2
Use the creditor’s name as cited in the credit report. (We provide that of course).
I did that in the example above.
Part A
There are variations in how creditors are known to their borrowers. It’s important to get the right name for debt assignment purposes. The underwriter is not looking at the borrower’s statement or credit card of paying attention to how the borrower refers to their card.
We provide the precise name of the creditor along with the best citation of the partial account number.
In the example above it’s not Chase Visa it’s JPMCC [for JP Morgan Chase Credit]
Part B
Debt for vehicles are almost universally assigned in decrees as the debt associated with the awarded vehicle; or, any debt associated with all awarded property in this decree.
Mostly Unknown Fun Fact
Credit reports give NO indication whatsoever what a debt is connected to or secured with. We usually find out when first going over the credit report with the borrower. But, the underwriter doesn’t merely take anyone’s word for what debt belong with what vehicle. Usually Toyota Motor Credit goes with a Toyota or a Lexus but sometimes it goes with another vehicle. And, the XYZ Credit Union finances all types of vehicles. So, the lender doesn’t just automatically know what debt goes with what vehicle.
The fix is simple. Assign the debt for the vehicle by citing the name of the creditor. And, either cite the partial account number using the same principle as above – “…account number beginning with…and ending in…” OR
We can provide the account number (partial though it may be) and advise that you cite it as
“partial account number beginning with _____ and ending in ______.”
Example: A partial account number could be 123456789. We don’t know what numbers may be missing. But, remember, only the underwriter needs clarification. So, we might say to cite it as
“partial account number beginning with 123 and ending in 789.”
Without this information, the borrower-client has to produce the note from the creditor with the account number. It’s a big hairy deal.
Tip #3
To EXCLUDE a debt for a borrower, here’s one of the rules.
Don’t create a payment scheme like “Wife will pay Husband and Husband will pay the creditor.”
That is not as assignment debt in mortgage world. If we are trying to get financing for Husband, that citation will not allow us to exclude the debt immediately.
Such an arrangement would create two debts for the same obligation. Now Wife has a debt to Husband. And Husband has retained the same debt. As Wife seeks financing, the creditor will see the debt obligation to Husband. As Husband seeks financing, the creditor sees the debt obligation to Husband. Sure, they see that Wife is supposed to pay him. But, *Husband would have to provide a perfect pay history for 12 months of his EX-Wife paying him before that becomes an excludable debt.
In sort, don’t tell the world and the underwriter (in the decree) how the sausage is made. Just assign the debt to Wife; and, if you need to, use an A.I.D. to carve out a payment scheme.
*It’s even worse than that. I won’t go into that right now because you and I are going to get the assignment properly cited, right from the start. NO PROBLEMS.
As always, these solutions need to be custom-engineered for each case and each loan. Get your client started early. It’s never too early to call. And, it’s never too late to call if they have not secured their financing in advance.
Thanks for reading. Go ahead, write me back. Make my day.
