Is it even possible for only one of the parties to keep the home?
By Len Rossine (New Jersey)
The unthinkable happens — parents are splitting; the family must deal with the emotions and trauma of one household becoming two, two incomes becoming one, and often the more frequent absence of either Mom or Dad.
Fault of the parties rarely matters to the kids, but conversely it is likely not the kids’ fault.
So, if avoidable, should the kids have to confront the possibility of having to also leave their home and adjust to a new bedroom, new neighborhood, loss of friends, and possibly even change schools?
Is it avoidable? Is it financially advisable? Is it desirable? Is it even possible for only one of the parties to keep the home?
What might a Family Lawyer consider to do to prepare his strategy pertaining to the marital home?
Using Child Support and/or Alimony as a New Source of Income
When one of the parties wants to stay in the home and the other is vacating, whether representing either side, consider arming yourself with mortgage banking knowledge to support your strategy, before you draft documents.
In crafting and reviewing a settlement agreement, it is often recommended by bankers with Divorce Lending expertise, that the attorney consider the proposed terms of the PSA in light of how it will be interpreted by a mortgage underwriter. These terms will serve as a road map as to the outcome of whether or not a new recipient of support (alimony or child support) can actually use that income to qualify for a new mortgage.
If a mortgage on the parties’ home is going to be in play, post-JOD, know its viability before you negotiate your settlement or appear in court!
For example, consider the subtle difference between new recipients of alimony or child support scheduled to receive support for 30 months post JOD. In most agency and bank program guidelines, that income will not count towards loan approval, however, stretching it out to 36 months, post loan funding date, totally changes the complexion of the agreement and in many cases will allow the income to count towards approval.
Get your artillery loaded now, before the fireworks start!
Whether you represent the vacating party or remaining litigant, consider the two edges of the sword. One party wants to stay; the other needs to be relieved of the mortgage obligation in order to qualify for a new loan to get a “fresh start.”
The Time to Come out of the Dark Ages is Now:
Remember the days before the much-needed influx of Forensic Matrimonial CPAs, when attorneys were commonly burdened with additional accounting and forensic responsibilities, on top of the legal ones?
Well, today we find the need to assist many Family Lawyers and give them access to professional mortgage banking advice, derived from experts with significant experience in Divorce Lending.
You don’t have to try to do it all by yourself, or worse yet, risk asking your client to speak with just any mortgage novice on obtaining financing for what might be the single biggest investment of their life.
Make sure that you have invested some minimal time in seeking out and vetting appropriate experienced Divorce Lending Specialists with significant background and expertise in matrimonial lending requirements and programs. Additionally, ask for their CVs and attorney references before you refer their services.
What If Your Opposition Counsel Finds Out the Divorce Lending Answers Before Settlement…and you don’t?
Consider today, with ever-changing banking and lending guidelines, more difficult qualifying elements, declining property valuations, would it not be advisable to locate competent banking advice from a Divorce Lending Specialist, before completion of the agreements. Would it not be in yours and your client’s best interest to have expert clarity added to your case strategy as it pertains to the marital residence?
What is the Financeable Value of the Marital Residence?
The financeable value is an appraisal that determines the value basis from which a mortgage loan will be granted. A value of the marital residence as determined by a court-ordered or attorney-ordered appraisal is no longer useable to a bank to provide a spousal buy-out or other mortgage loan. The value must be determined by the lending-bank ordered appraisal in order to determine the Financeable Value.
So take the case wherein an attorney orders and appraisal of the home and it comes in at $250k, the opposition orders one also which comes in at $235k. They proceed to negotiate out an acceptable value to the parties and settle on $240k. The Property Settlement Agreement calling for one party to remain in the home and to buy out the vacating parties’ interest is drafted, reviewed and signed. The remaining party calls his/her local bank, they pre-approve the loan, order the appraisal — which comes in at $210k! All of the parties have just been blindsided by the reality of values.
The parties might well have agreed on a value, but financing a spousal buyout is not going to happen based on that agreement of value, or a value assigned by the court.
The better solution for your client would be to refer him to your Divorce Lending Specialist of choice and allow that bank to complete an appraisal on the subject property, in the beginning of the case, before you lay the foundation for your case strategy.
Best of all, outside of the cost of the appraisal/credit report, the information that you should easily be able to obtain from competent banking professionals will be at no cost to either you or your client.
The cost of not knowing the information could likely be much greater.
Len & Cindy Rossine are Divorce Lending Specialists & Home Loan Experts at Investors Home Mortgage, a wholly owned subsidiary of Investors Bank, and remain available for case consultation for Judges and Attorneys, at (732) 930-1555. They are presenters for educational seminars for ICLE, NJSBA Family Law Section, NJSBA Young Lawyers Division, American Academy of Matrimonial Lawyers-NJ, CT & National Chapters, various Inns of the Courts, County Bar Associations and many large and small law firms throughout the state of NJ.