Full question: Should Divorce Settlements Always Require a Refinance of the Awarded Property?
Part 2: Can The Awarded Party Refinance?
If the issue of “should” is resolved, what of the issue of “can?” That is, if the consensus is that a grantee should refinance a debt, the practical question becomes, canthey qualify to do just that? What good can come to parties if a philosophical agreement is not followed with practical action?
The question is: Can someone turn white paper into green money? That is, can they actually complete the refinance transaction and close their loan in a timely manner?
It’s one thing to have a filed or entered agreement or some judgment from a court. That’s merely white paper – e.g. A Special Warranty Deed with Encumbrance for Owelty of Partition and/or a Decree of Divorce that requires the refinancing of a debt. Until a financier acts upon that agreement and produces a loan that puts money into the hands of creditors or grantors, it remains white paper at the court house.
WE TURN WHITE PAPER
INTO GREEN MONEY
The shortest distance between A and B here is for the potential grantee to call me (at 817-454-4555 or email me at [email protected]). By applying for a mortgage loan, the party and his/her attorney can be properly informed about loan approval and the conditions required.
I receive calls frequently from attorneys in meetings (mediation, collaboration, consultation, etc.) who ask about one of the parties’ ability to obtain mortgage financing. THIS IS THE JOY OF MY PROFESSIONAL LIFE. . . because this is the heart and soul of solving problems before they become problems.
Attorneys seem to always know the pertinent information to give me. But, so that you know for sure what information I need to give a preliminary “Yes, that is probably in the range of qualifying” or “No, those numbers will probably not work,” here is a list of facts I need to know:
1. Which party is being awarded the house?
2. Income of the grantee/borrower
a. Employment income (length of time on job or in particular “line of work”)
b. Support income (and continuance; children’s ages for child support suffice)
3. Approximate value of house
4. Approximate balance on mortgage(s) - and, if one of the mortgages is a "cash out"
5. Approximate debts against grantee/borrower (post-divorce).
6. Preliminary idea of credit rating
Obviously, I will have to take an official application, pull credit, examine documentation and make a complete assessment before delivering a written pre-approval. But, answers to these questions will enable me to give you a sense of whether or not we are “in the ballpark.”
I really encourage you to host or attend my course Credit & Mortgage Qualifying in Divorceso that you will have a working knowledge of just a few rules that affect divorcing clients’ ability to get financing. (It has 1.000 CLE credit hours). For now, though, here’s a cheat sheet.
1. Support income can qualify if it follows these simple rules
a. Must develop a 3-month history (for FHA) or 6-month history (for conventional) of support payments. Informal payments (not ordered through temporary orders or in an MSA or in a decree) can count. So, start any time. Just document it properly.
b. Must continue for 3 years after loan closing (not just after final divorce). 35 months do not count. 36 or greater are required. Yes, it’s that stingy in underwriting.
c. Documentation is critical. Funds must come from payer’s sole/separate account and deposited into payee’s sole/separate account. We recommend one check/payment for child support and a separate check/payment for spousal for at least the amount that is needed or contemplated. If there is doubt, more is better because the qualifying amount is the lesser of what is documented or what is ordered. There must be clear evidence of payment and deposit. Think old-school – cancelled checks with deposit receipts.
2. New employment income can qualify if
a. The borrower has 2 years or more of experience in the particular line of work
b. The borrower has college or trade training for a particular line of work
c. There has not been a significant “gap in employment.” This is the tricky one and often comes down to the underwriter’s comfort level. If other elements of the file are strong – like low debt ratios, low LTV (Loan To Value) ratios, large assets, very high credit scores, strength of employment, etc. – then job gaps create less concern.
3. Appraisals are critical – and yours doesn’t count. The only appraisal that is operative in financing is the one ordered by the lender. The appraisal that was obtained by the wife, the husband, the attorney, the judge and the mediator are irrelevant to the financing process. So, before agreeing on a buyout figure, I highly advise early application and ASAP appraisal ordering. We take care of that, of course. Don’t assume that there is lots of equity in the house based on anything. For example, some borrowers cannot finance more than 80% of their home’s value. This is not just the case in Texas “Cash Out” (or Equity) financing wherein the LTV is limited by law; some borrowers do not qualify for mortgage insurance (required for most loans above 80 LTV) or second liens; and, sometimes when they may otherwise qualify for mortgage insurance, the increased payment causes their debt ratio to exceed allowable maximums.
Conclusion
When there is agreement that the awarded party should refinance the mortgage (held jointly or in the name of the grantor), the attention should immediately turn to the question - can the party qualify for financing? Only a competent Divorce-Lending Specialist should be trusted with this task.
I just happen to know a Divorce-Lending Specialist. In 2002, I began developing a unique niche that catered to family law attorneys and their clients – offering loan approvals before final divorce so that all parties could be assured of financing. In other words, for 12 years now, we have been “turning white paper into green money.”
Always At Your Service,
Noel Cookman
817-454-4555
