Sometimes,
deals blow up because the lender is not able to meet deadlines set forth in a
divorce settlement. Financial loss. Unhappy clients. Additional litigation. No
one wins in these situations.
I can’t say
that I’ve seen it all but after 13 years specializing in Divorce-Lending, I’ve
seen enough to create a response concerning how grantees (of awarded
properties) are required to pay buyouts to ex-spouses. I’m speaking mostly of the time elements that are specified in a
decree such as “Respondent to pay $50,000 by Nov. 1, 2015” or “Petitioner to
pay $50,000 within 60 days of entry of this decree.”
I have a few
suggestions that I believe will accommodate your settlements and avoid unhappy
clients because dates are missed or because the feat, itself, is impossible.
An example:
We are just closing a transaction wherein the MSA required payment of grantor’s
interest within 60 days OF THE DATE OF THE MSA, not from the date of final
divorce. Since an Owelty cannot be financed until after final divorce
(not merely after a judge says “I’m granting this divorce” and answers “yes” to
the party’s question “your honor, does this mean I’m divorced”), the date of
the MSA is irrelevant to the actual closing and funding of any Owelty buyout –
only the date of entry of the final divorce decree affects when this Owelty
buyout can occur.
Well, the
drafting attorney – the attorney for the grantor (who was to receive a buyout)
– had not drafted the decree as of about 2 weeks prior to the 60-day time
limit. I could see that there was no way we could meet the deadline. Opposing
attorney (my customer’s attorney) took up the task of drafting; but, even then,
there was no way to meet the deadline. My customer’s attorney (who had referred
said customer to me) was a talented negotiator and bought us some extra time,
by extending the deadline to a more reasonable date in the final decree. That -
I’m sure you caught this – was a change to an IRREVOCABLE AGREEMENT. Nifty
trick if you can pull it off. Great legal work; and, I assume, kudos to the other
side that agreed to it and helped to accommodate a realistic time table.
This true
account has the elements of my suggestions below. So, I won’t tease you and
wait until the final suggestion to give you the most important element, the
critical factor in writing agreements and decrees that “turn white paper into green
money.” Here it is:
1.
Get a Divorce-Lending Specialist
working on this ASAP.
That is - Refer your client to me. Or
have opposing refer their client to me. I
would say refer them to any good, competent, experienced, top-of-the-line
Divorce-Lending Specialist. But, as much as I would like to say that there are
plenty of Divorce-Lending Specialists out there, that statement is not true. Is
this blatant commercialism and capitalist opportunism on my part. Sure…
But,
there is a real reason for this important step. Without the consultation of a
specialist, how does anyone (parties,
attorneys, judges, mediators, neutral professionals in collaborative, et al)
have any idea IF the buyout can be financed at all let alone if it can
transpire by ANY particular date? I cannot emphasize this enough! At
least when assets are split in a liquid account, everyone can see that there
are X dollars here and this party can be awarded X minus Y and the other can be
awarded Y. But, when financing is required, who is able to assure the
parties/attorneys/court that the grantee can, in fact, be granted a mortgage
loan?
Here’s
why I am very confident that most cases have been settled (many times with unrealistic
deadlines) and no one in the divorce action (parties, attorneys,
mediators/judges) is confident of financing: hardly any lender even takes a
loan application until the divorce is final, let alone delivers approval
statements prior to final divorce. They could if they wanted to but they just
don’t know what to do with an unresolved (not final) divorce case. I, on the other hand, know exactly what to
do. I get the borrower prepared and processed; and, I deliver to them and
their attorney an approval statement with precise recommendations concerning
what elements must be present in order to close their loan and “turn
white paper into green money.”
2.
Never specify a deadline for a buyout before
final divorce. As
I stated earlier, no Owelty can be financed until after final divorce. I was going to specify that the Owelty could
not be financed as a purchase money
transaction until after final divorce, leaving open the possibility that it
could be financed as a Texas Home Equity loan. But, that’s not true because an
Owelty cannot even be established until final divorce. An Owelty is established
in the same action (document, The Special Warranty Deed with Encumbrance for
Owelty of Partition) that divests a party of his/her interest in the property.
Given community property provisions, this is established ONLY in the final
decree of divorce.
I
realize that, sometimes, the expectation and earnest position of opposing is
that the buyout simply must happen before final divorce or on the date of final
entry of the decree. While buyouts certainly can be paid prior to
final divorce, my point is that they cannot be financed until after
final divorce. Remember, I don’t give legal advice – I’m not a lawyer. I state
limits and conditions to financing at the intersection of divorce and mortgage
lending.
(I
am leaving alone the debate about partitioning of properties during the
marriage because, in my world – the world of mortgage underwriting and title insurance
– final divorce is still required in order to finance Owelties). If the day
ever comes when lenders and title insurers finance/insure Owelties before final
divorce – trust me – I will know and I’ll be on that like stink on a skunk.
3.
Give it enough time after final
divorce for the borrower to fully qualify. I suggest always allowing at least 45 days. But, this
only works if the loan is already in process. Here again, the Divorce-Lending Specialist
will tell you how much time. As we pre-process our divorcing customer’s
loans, the actual “red tape” and clerical work required after final divorce
amounts to very few hours plus a few days because of new regulations. In
reality, it could take several days. So, for the most part, we are closing our
loans within a couple of weeks after final divorce. But, here are some reasons
why it could take longer.
a.
The
borrower may need to repair or enhance their credit. The Divorce-Lending
Specialist will advise as to how much time. Sometimes, we have recommended up
to two years on cases wherein credit profiles were in dire straits. Most often, much less time is required.
b.
The
borrower may need to establish a “pay history” of receiving child or spousal
support. The standard time required now is 6 months (for FHA and Conventional
financing). The Divorce-Lending Specialist can tell you – almost to the day –
when the client’s loan can close.
c.
The
borrower may need more time on the job. After significant gaps in employment
(for example, a wife/mother who has been out of the job market for several
years), it is becoming standard that lenders require a back-to-work period of 6
months. If the borrower is entering a new line of work for which he/she has no
education or if the borrower is starting a business and will be self-employed,
a two year history of income is required. There are several factors. And the
astute Divorce-Lending Specialist will predict and advise regarding this.
d.
The
collateral property may need seasoning time to increase in value to a required
dollar amount in order to be financed. While no one can predict values with
pinpoint accuracy, the fact is some properties don’t have enough value to be
financed in the present; and, the only hope of having them financed is through an
increase in value….which takes time.
e.
If
Texas Home Equity financing has been procured within the 12 months preceding,
the refinance of this equity mortgage cannot take place until at least 12
months have passed from that prior transaction.
By working with me, you won't be in the dark about either the IF or the WHEN.
You now have
the advantage of knowing that an agreed buyout is not merely a fair and
equitable division of property but a feat that can be accomplished…and you know
by what particular date it will actually take place – when we turn white paper into green
money.
Thanks for
your support. Find and follow me on Periscope. Noel_Cookman
Noel Cookman
817-454-4555
noel@themortgageinstitute.com
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