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I’m giving away almost all the ingredients to my Divorce-Lending “secret sauce.” This is a recipe I’ve refined over the past 20 years and it’s pure magic. It’s been the difference between mom having to sell the house and move into an apartment or keeping the little crumb-crunchers in their same bedrooms, same school, same neighborhood…having a chance at that grand “life after divorce” we all want to them is possible.
It’s important because without it, you cannot be sure that this very special and important loan -
- can actually close.
In my Assessment/Approval – my report to you about a client’s qualifications and conditions for mortgage financing – I always include the following paragraph in bold type.
URGENT and CRITICAL
Please copy us on drafts of the decree before they are signed by the parties. We will pre-underwrite this draft to assure a smooth transaction. Pertinently, divorce decrees are universally underwritten as part of a loan file for any applicant who has been divorced. In any case, the client’s decree will most certainly be underwritten in this instance. ‘Tis better to pre-underwrite than to be caught by surprise.
The paragraph provides a brief explanation as to why I want to review the decree before its execution. And I will discuss other reasons and benefits to a divorcing borrower in upcoming blogs on the subject.
Why would I review a divorce decree?
It’s not a legal review. Even if I were a lawyer, I would not review your work. That would be inappropriate and counterproductive.
It’s really an UNDERWRITING PRE-view not a RE-view.
The major reason I need to preview the divorce decree – and a lot of folks do not know this – is because an underwriter will read every word of it. Not only will the underwriter review it but he/she will consider everything in it as relative to the loan file.
Here’s a good example. A divorcing husband purchased a car for his soon-to-be ex-wife in his own name and credit – NOT using her name/credit to obtain the loan. In their thinking, this would help the wife qualify to refinance the mortgage in her own name, the debt not showing on her credit report. (The liability, obviously, did not appear on our borrower’s credit report). But, the proposed divorce decree assigned the debt to wife.
When I discussed this with the husband – and why the wife might not qualify with that extra debt – he eventually understood but initially had a difficult time comprehending that a debt which does not appear on a credit report still counts against the borrower if it is, in fact, assigned to that borrower in a divorce decree. The divorce decree functions as an addendum to the credit report in mortgage underwriting.
You see, in other situations – in normal circumstances – the only way to know what debts must be counted against the all-important debt ratio is for the lender to examine the borrower’s credit report. This couple thought they could “game the system” by simply getting a loan in the other’s name, thereby exempting it from the borrower’s credit report.
This is a major reason lenders require the entire, conformed divorce decree when underwriting a file – the detection of all debts.
When an applicant sends “just the part that has to do with the child support” or “just the part that has to do with the buy-out” – and get upset when I say, “send the whole thing” - they are about to learn a hard lesson in mortgage qualifying if they think they can hide liabilities and obligations from the lender’s underwriter. The lender will not advance funds for a loan until their underwriter reviews every word on every page of that borrower’s divorce decree…and calculates all applicable obligations against that borrower.
And this is why I preview - really PRE-underwrite - the decree before its execution. As you know, I will already have been processing and underwriting the loan for the client – well before most every other lender wants to even take an application!
And this, my friends, is how we assure successful closings – we do not throw things to the wind and hope for the best. We give the entire settlement a meticulous pre-view and make recommendations accordingly.
Next newsletter/blog: The 2nd reason I preview – PRE-Underwrite - divorce decrees. It’s the make-or-break issue of math, the math of dollars. Get it wrong and there is no refi, there is no buy-out, there is no home for the kiddos.
Thanks for reading.
Noel Cookman
