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Written by Karen M Rizzo, Certified
Mortgage Planning Specialist, President - Township Property Finance &
Consulting Corp. 631-465-2066, 68
South Service Road, Suite 100, Melville,
New York 11747
There are many questions about a marital
residence that a client will ask at the time of divorce. Here are the
typical questions that arise and how we can address them to our client's
satisfaction.
To stay or not to stay,
this is the question?
If one of the divorcing parties wishes
to continue to reside or own a particular property of the primary
residence after the divorce is final, it is important to discuss if that
option truly makes sense for that particular person. Will they be able to
take on the entire responsibility of the house payments, taxes,
insurance, upkeep, maintenance, and other related household bills? Does
the household income support these financial obligations now? Will they
be able to cover anticipated increases in expenses, such as real estate
taxes or utilities? What about unexpected expenses, such as a new water
heater or major appliance? Is there a chance personal income might
decrease? Does the client have sufficient disability insurance, health
insurance coverage to hedge a crisis situation? After this divorce is
final will support payments make managing this house impossible or
easier? It is important then that the client is made aware of all the
potential financial issues that might come up and decide honestly if they
can actually remain in this house. For investment properties, can they be
rented? Or shared?
Equity? And what is
fair?
The equity in the home needs to be
determined by an appraiser, a licensed appraiser, not a real estate
agent. The appraised value less the eventual costs of selling
(commissions and seller closing costs and any loans) equals the net
equity the client may be obligated to share in some percentage with the
ex- spouse. In some states, any money either of them had contributed to
the home from the pre-marital assets must also be accounted for as
separate property in determining the final division of net equity.
With a divorce, either spouse may put a
marital lien on the property or there may be a court ordered mandate for
distribution of the equity, possibly including interest on that amount.
This means that one party will likely have a specified amount of time to
obtain the funds needed to give the other party their portion of the
equity. This can be done by cashing out the equity in the home with a new
mortgage, selling the home, or by using other assets to buy their stake
in the home.
If the client chooses to stay in the
home, there are two choices using the cash out for the property, either
refinance or take a second mortgage product of some kind. Even though the
client might now be qualifying for a loan without the other spouse's
income, with good credit and income, it should not be an issue dependent
upon the amount of the loan that is needed. Often the child support and
alimony is viewed as stable income, if it has been received for three
months and is likely to continue for at least three years.
It is important to know that even though
the divorce decree awarded one party the home, in the eyes of the bank,
both parties are responsible for the payment if one party is not removed
from the mortgage obligation. Many couples make the mistake by thinking
that if the ownership is removed from one spouse they are no longer
obligated to pay the mortgage if it goes into default. This is not true
at all. The benefit of filing a Quit Claim Deed is that if the spouse on
the title passes away, the property will go to his or her heirs rather
than to the ex-spouse.
Financial
Responsibility:
Because of this obligation to pay for
the home regardless of who lives there, if a client is on title and on
the mortgage note, they are obligated to pay the debt. It is imperative
that the person responsible for payments remains current and in good
standing. One possibility is to remove one spouse's name from the
mortgage. This is called a "Qualifying Name Delete Assumption",
however not all lenders will agree to do this. This process will leave
the existing loan in place, but would relieve the non -occupying spouse
from their obligation on the loan.
Purchasing another
property before the marital home is sold?
It is difficult and not usually advised
to purchase another home until a divorce is final, there are some
situations where this action might make sense and the parties might be
able to afford to do so. A prequalification would be necessary and can be
arranged by a mortgage broker or banker. Remember the rules for alimony
and child support stated in this article are for qualification purposes,
and the necessity of having continued good credit and no late payments
will make this much easier to achieve. However also keep in mind that any
joint debts that have not been released until after the divorce will be
taken into consideration and can hinder the application of a new mortgage
for the new property.
Taking the time to talk with a
"Certified Mortgage Planning Specialist" (CMPS) during this
process and before the client takes on any additional debts is the best
way to hedge any long term problems that could have been avoided. A CMPS
is a qualified financial expert who can provide financial consultations
that include credit reviews, and mortgage strategies to assist our
clients.
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