Sven Buncher, Managing Partner of Buncher Family Law, recently had an opportunity to speak about real estate issues which might impact a divorce with Matt Wright, co-founder and President of Alliance West Mortgage. With a specialty in divorce mortgage lending, Matt holds designations as a Certified Divorce Lending Professional (CDLP) and a Real Estate Collaboration Specialist in Divorce (RCS-D). Matt works with divorcing clients throughout the divorce process and recommends specifically structured mortgage financing strategies to ensure they have successful real estate transactions post decree.
Sven discussed issues surrounding why people might need to consult with a family law credentialed real estate professional prior to entering into a divorce decree if they are contemplating selling or refinancing a home. Matt shared the following reasons why this can be a critical step.
“There are special loan programs only available to a divorcing mortgage applicant that may allow a party to qualify for a lower interest rate loan than he/she could otherwise obtain with traditional mortgage products. However, the divorce decree would need to be drafted with specific terms which allow the party to take advantage of such loans.
“For example, under a ‘Divorce Underwriting Structure’ the borrower may be able to cash out up to 97% of the equity in their family home, as opposed to about 80% that might be otherwise available. This helps the borrower obtain funds needed to buy out the other spouse’s interest in the family home or other community property.
“It is also essential to get a loan broker involved early on in the divorce process for refinancing planning purposes. In order to qualify for certain loans, the lender will want to verify the receipt of at least 6-months of spousal support to have verification that the payment will be reliably received by the other (refinancing) party. Thus, the refinancing party’s attorney will need to obtain a court order for spousal support at least 6 months prior to the final divorce decree. This can be done by a stipulated court order entered into voluntarily by the parties, or by a motion to the court. The amount of spousal support can be changed later on, but it is imperative to establish at least a 6-month track record of reliable spousal support payments under a court order. If the spouse has been voluntarily paying spousal support without the benefit of a court order, the lender will want to see at least a 12-months of on-time spousal support payment history.
“If a party wants to refinance the family home, the party will want to have the mortgage lender evaluate his/her creditworthiness to determine his/her ability to qualify for the refinance and to obtain the needed amount of cash. If qualifying issues are present, the lender can present potential solutions to get the client into a qualifying position and ensure a successful refinance transaction. This also applies in situations where the party will be selling the home and using a mortgage to purchase a different home.
“Another important reason to consult with an experienced family law real estate broker is preservation of credit. One 30-day late mortgage payment can drop a borrower’s credit score 100 points (e.g. turn a 750 FICA into a 650). We always run a credit report to discover if there are any unforeseen issues that might prevent an ex-spouse from negatively impacting another spouse’s line of credit.”