The deed, decree, and debt all intersect during divorce yet all three need to be dealt with separately in the settlement process. Therefore, working with a mortgage planner with the right experience is essential during a divorce. This is why it's crucial to bring in a Certified Divorce Lending Professional (CDLP®).
When transferring ownership of the marital home from jointly held ownership or sole ownership to the other spouse, using the correct transfer deed, i.e., a Quit Claim or a Warranty deed, is important for protecting the new sole owner. A Quit Claim deed is the most commonly used transfer deed yet, provides the least protection to the receiving spouse. Without warranties, it offers the grantee little or no recourse against the grantor if a problem with the title arises in the future.
A Warranty Deed may be a much better choice as it provides the most protection to the new owner. This type of deed guarantees that the grantor holds clear title to a piece of real estate and has a right to sell it to the grantee. The guarantee is not limited to the time the grantor owned the property as with a special warranty deed; instead, it extends back to the property's earliest title. As such, earlier grantors occasionally find themselves confronted by issues from future grantees.
The decree and the divorce settlement or separation agreements can make or break the divorcing clients' ability to obtain mortgage financing. Verbiage included within the agreement should address more than simply stating that "Mrs. Smith is awarded the home and will refinance the current mortgage. "
Verbiage within the agreement should specify the time frame she is to refinance and who is responsible for the existing mortgage payment, taxes, and insurance until the home is refinanced. If not worded correctly, Mr. Smith may have hurdles to overcome when trying to obtain mortgage financing himself in the future.
It is always in the best interest of both divorcing spouses to obtain pre-approval for future mortgage finance before the divorce is final.
Addressing all marital debt in the divorce settlement agreement is another critical topic that needs clarity and can affect how debt is considered during mortgage financing. If the debt is joint, specifically address how it will be paid and by whom. Simply stating the parties will share the burden of paying joint debt 50/50 doesn't cut it.
Clarify that each party is responsible for paying 50% of the specific debts and how each party is to pay. For example, Mr. and Mrs. Smith will each share the burden of paying the marital debt 50/50, and each spouse will pay 50% of the monthly payment until the debt is paid. This clarifies how the debt will be counted during the mortgage application process.
Working With an Experienced Mortgage Professional
It is always important to work with an experienced mortgage professional working with divorcing clients. A Certified Divorce Lending Professional (CDLP®) can help answer questions and provide excellent advice.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations.
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