When dealing with real property in a divorce, several critical factors come into play, especially when mortgage financing is required. This article addresses some commonly overlooked details that can significantly impact the borrowing spouse's financial situation.
Common Questions About Real Property in Divorce
- What’s it worth?
- How much do I get?
These are fair questions for the marital balance sheet. However, when one party retains the marital home, a few additional details need addressing to ensure optimal mortgage financing for the borrowing spouse.
Title and Its Importance
Who’s on the title, and why does it matter?
Both spouses are not always listed as owners on the title. However, this does not automatically prevent the non-titled spouse from refinancing the existing loan into their name. Once the non-titled spouse is awarded the property, they become a Successor of Interest, allowing them to refinance the mortgage.
For an equity buy-out, the borrowing spouse must have been on the title for the previous twelve months to access the equity in the home.
Current Mortgage Considerations
Who’s on the current mortgage, and why does it matter?
Even if the spouse retaining the home is not on the existing mortgage, new mortgage financing can still be obtained. However, it is crucial to notify the current mortgagor to avoid the acceleration of the due-on-sale clause. The retaining spouse should inform the lender of their intent to assume legal responsibility for paying the mortgage under the Garn St. Germain Act.
Refinancing and Escrow Accounts
Refinancing the Existing Mortgage
When refinancing, any overpayments or escrow account balances will be refunded to the spouse obligated on the existing mortgage. Escrow accounts usually cover property taxes, and these must be addressed during the settlement to avoid unpaid tax liabilities.
Access to Mortgage Information
If the borrowing spouse is not on the current mortgage, obtaining a payment history can be complicated. Setting proper expectations and gaining the cooperation of the non-borrowing spouse can streamline this process.
Determining Property Value
How is the real property value determined, and why does it matter?
There are two common methods for valuing real property:
- Appraisal - Conducted by a licensed appraiser, based on recent comparable home sales data.
- Comparative Market Analysis (CMA) - Provided by a licensed real estate professional, based on the property's potential sale value in the current market.
When refinancing, an appraisal may be more suitable, while a CMA might be better for selling the home. It’s often beneficial to have the lender order the appraisal during the settlement process to ensure consistency in the valuation.
The Importance of Details
What may seem simple at first glance can be quite complex. Addressing these details thoroughly ensures a smoother transition and better financial outcomes.
Role of a Certified Divorce Lending Professional (CDLP®)
Divorce Mortgage Planning is a holistic approach to evaluating mortgage options in the context of overall financial objectives during a divorce. As a CDLP®, we help identify potential conflicts between the divorce settlement, financial planning, home equity solutions, and real property issues.
The goal of a CDLP® is to integrate the selected mortgage into the long and short-term financial and investment goals, minimizing taxes, interest expenses, and maximizing cash flow. This helps divorcing homeowners make informed decisions regarding their home equity solutions and mortgage financing opportunities.
Benefits of Early Involvement of a CDLP®
Incorporating divorce mortgage planning into the settlement process allows for identifying possible solutions and assists both parties in letting go of counterproductive positions and emotions. A CDLP® helps take stock of possibilities, resources, and answers regarding the marital home, other real property, and mortgage financing opportunities.
A successful divorce settlement results from effective communication and strategic negotiations, ensuring that both parties come out whole or on the road to recovery. Working with a Certified Divorce Lending Professional (CDLP®) during the settlement process results in better solutions and outcomes for the divorcing couple.
Involving a Certified Divorce Lending Professional (CDLP®) early in the divorce settlement process can help divorcing homeowners set the stage for successful mortgage financing in the future.
This is for informational purposes only and not to provide 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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