Divorce, Real Estate and You! What you need to know.

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Unfortunately, bad things happen to good people and I can speak first hand of the consequences, stress, emotions and financial difficulties that arise from a divorce.  At a younger age my parents went through a divorce but the consequences left them “financially married” many years after. 

Currently, in the U.S. between 41 to 50% of all marriages result in a divorce.   While I am not here to give anyone legal advice, as that should only come from a licensed attorney I here to discuss the financial options that both homeowners do have.

First, we must discuss the options of the homeowners during a divorce.  Divorce law varies state to state so it is important to understand the differences.  There are states commonly known as “community property” states (link).  Community property states consider all monies earned, debts incurred and property bought during the legal marriage to be owned equally by husband and wife or 50/50 ownership.  The other remaining states follow an “equitable” distribution law.  In these states’ property acquired during marriage belong to the spouse who earned it or divided between spouses in a fair and “equitable” manner.  Either of these options should be discussed with competent legal counsel as well as financial advisors and a highly experienced mortgage professional along with a realtor to ensure your financial security.

In a divorce situation when there is real estate involved many times that real estate is encumbered with a mortgage or lien on the property.  The “mortgage” is a legal agreement made for the purposes of buying real estate/property.  Along with the “note” which is the actual legal obligation to pay back the loan are executed at closing.  In many cases both spouses sign these documents in order to qualify and afford the property.   Regardless, of either party being quit-claimed off the property and regardless of who the courts elect will hand over possession of the property the obligation to pay the “note” remains the responsibility of both parties and reflects on their credit reports.  IMPORTANT NOTE TO READER: FHA and conventional guidelines allow for “extenuating” circumstances but divorce is not one of them.  The obligation to pay holds true from joint credit cards, cars and bank accounts.  Without properly being removed from the debt vehicle one spouse’s lack of payment will detrimentally affect the others credit which can potentially stop them from obtaining credit. 

REFINANCE:

Through careful consideration and thorough legal advice, a “refinance” maybe an equitable split if one spouse decides to keep the property and the other spouse can be bought out with equity in the property after all remaining liens and encumbrances are paid.  IMPORTANT NOTE TO READER: An appraisal done by a licensed and non-biased appraiser is the best way to obtain a fair and impartial value of the property.  While some appraisals can be transferred or used by some lending institutions many lending products will not allow for this and only an appraisal ordered by the lending institution bank can be used.  A broker price opinion (BPO) done by a licensed Realtor is another way to obtain a valuation and can be received free of charge as many independent appraisals start at a cost of $200.00. 

SELLING:

In many situations, selling the home may be the best and only option especially if neither party can come to an agreement about the value of the property, equitable split, ownership and obligations to pay the remaining debts on the property.  If selling the property is the is the option chosen or advised a highly competent, non-biased Realtor is of extreme importance.  IMPORTANT NOTE TO READER: Finding the right listing agent can be a strenuous and emotional process.  Both spouses may want to use their own Realtor.  Obviously, providing top dollar for the property is vital but selling time lines is of equal importance.  Having a highly qualified and experienced Realtor can provide both parties with a valuable asset.

In all cases consenting parties make for a less stressful and usually less expensive separation as the end result is to have both parties “move forward”!

Joseph M. Savino is a 29-year mortgage expert with 17 years of direct underwriting experience. He is a previous owner of a two top rated correspondent mortgage companies. He is a degreed graduate of DePaul University in Chicago, IL. Currently working at American Financial Network, Inc as a Regional Manager and National Renovation Division Manager. Licensed in all states we are experts in FHA, VA, USDA, Conventional loans, Renovation loans, Reverse mortgages and Non-QM (Qualified Mortgages) including bank statement loans, asset-based loans, and stated income loans for self-employed borrowers as well as hard money loans.

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