Fix It, Credit It, or Find Out Later: Who Pays for Repairs on the Marital Home in a Divorce

Every house in a divorce needs something. The question is not whether the marital home has problems. It is whether the settlement agreement says who pays for them, and when.

Here is an illustrative file in which nobody did anything wrong. The house is divided on an appraised value. The agreement is signed, the decree is entered, and months later the spouse keeping the home applies to refinance and fund the equity buyout. The lender's appraisal comes back with the roof itemized on the first page, along with an estimated cost to repair. The appraisal the parties negotiated from never mentioned it. Now the refinance is on hold, the deadline in the agreement is running, and the spouse who moved out has no particular reason to help.

Nothing in that file was careless. The repair simply had no owner, because nobody wrote one into the agreement.

Two kinds of repairs, two different drafting jobs

Known repairs: negotiate them now

Repairs both spouses already know about can be negotiated before the house is divided, and they should be negotiated on purpose rather than absorbed into a value nobody examined. There are only a few ways to handle a known repair:

• Lower the value the equity buyout is based on.
• Credit the cost against the buyout payment.
• Complete the work before the transfer, with the agreement naming who pays.
• Leave it as it is, with both spouses acknowledging the condition in writing.

Any of them can be right. What goes wrong is choosing none of them and assuming the appraisal already accounted for it. Known items belong on their own exhibit with their own allocation.

One category cannot wait. On a conventional loan sold to Fannie Mae or Freddie Mac, deficiencies that affect safety, soundness or structural integrity generally must be repaired before the loan can close. If the spouse keeping the house needs a refinance, that repair is not optional, and the agreement should say who pays for it and from what money.

Lender-required repairs: allocate an unknown

This is the harder job, and the one most settlement agreements skip. In most divorce files, the lender's appraisal does not exist when the agreement is signed. It is ordered after the decree, when the refinance application goes in. So the agreement cannot list what the lender will find. It has to allocate an unknown, which is a different drafting task: a trigger and a mechanism instead of a list and a number.

In plain terms, the agreement answers these questions at signing about a fact nobody will have for months:

1. What triggers it. The lender requires a repair, alteration or inspection as a condition of the loan.
2. Who tells whom, and how fast. With the page of the lender's report attached, so there is no argument about whether it was really required.
3. Where the cost number comes from. The estimate in the lender's report, or the lower of two written contractor estimates, one obtained by each spouse.
4. How it is split. For example, one spouse covers it up to a stated dollar amount and the two share everything above that.
5. How it is paid. Usually as a credit against the buyout payment rather than a separate check, because money is already moving in that transaction.
6. What happens to the deadline. It extends by the time the work and the lender's completion report take, and that extension is not a default.
7. Where it stops. A ceiling, and what happens above it. Without a cap, the clause is an open-ended obligation nobody can price on the day they sign, and a careful attorney will strike it rather than negotiate it.

Add one more line about access and cooperation. The completion report usually needs a re-inspection, and sometimes a signature from the spouse who has already moved out.

A repair nobody has found yet is still a repair somebody will pay for. The only question is whether the agreement decided who.

Why the lender's appraisal may say more about condition than the divorce appraisal

Lenders are moving to a redesigned appraisal report under the new Uniform Appraisal Dataset, UAD 3.6. It records defects in structured tables, notes whether each one affects soundness or structural integrity, rates kitchens and bathrooms individually with photographs, and carries an estimated cost to repair onto the first page.

A general purpose appraisal ordered for a divorce is not required to include any of that. Condition in that report is whatever the assignment called for, and in many divorce files it is a short narrative. So on condition, the more detailed document in the file will often be the lender's, the one that was never written for the case. That is the opposite of what most people assume. The Divorce Appraisal Report sets out the differences field by field.

The one move to make early

If condition is likely to be contested, say so when the appraisal for the case is ordered. The person engaging the appraiser states the intended use and can make clear at the outset that condition, and what it would cost to cure, matter to the assignment. That is a conversation before the report is written, not after someone notices the lender's version says more. How the appraiser scopes the work is the appraiser's call.

The same thinking runs through a Divorce Mortgage Planning Report: the refinance, the buyout and the repair terms are tested together while the agreement can still account for the answer. A Certified Divorce Lending Professional in your market can be found in the CDLP® directory, and the reference for attorneys and mediators covers valuation, feasibility and settlement drafting in more depth.

This article is general information for professionals, not legal advice, and it does not instruct appraisers on scope of work. The appraisal rules described apply to conventional loans sold to Fannie Mae and Freddie Mac.