The implications of divorce on mortgage financing

By: Lori T. Williams, Owner/Managing Attorney of Your Legal Resource

Mortgage expert David Keblaitis shares how divorce impacts a borrower’s mortgage financing.

“Often the person keeping the home is mandated by the divorce decree to refinance the marital home in order to remove the other party from the current mortgage,” says Keblaitis.  “This can be problematic when the home is under water and there isn’t sufficient equity to refinance the home.”  However, there are solutions available and Keblaitis believes in finding the right mortgage product for each client’s needs.

In one case, Keblaitis had a female client who received the house as part of her divorce settlement. The home was slightly upside down, and his client was listed on the title to the home, but not on the mortgage debt.  The divorce decree required the former husband to bring $20,000 cash to closing (due to the home being upside down), in order for him to be refinanced off the mortgage and a new mortgage established in his ex wife’s name.  Keblaitis was able to get 95% financing for his client (the ex wife) on a conventional mortgage.

Another challenge arises when one of the parties to a divorce seeks to buy a new home while still on the mortgage of the old home.  “Simply removing a joint borrower from the title through a quit claim deed will not be sufficient to relieve them of the current mortgage obligation,”  says Keblaitis.  “However, the good news is that if the divorce decree states that my client is no longer responsible for making the mortgage payment at the marital home, then I don’t have to use that debt against them when qualifying them for the purchase of a new home.”

Realtors, mortgage professionals, and divorce attorneys need to work together in order to come up with the right language in a Judgment of Divorce which will allow the parties to manage their existing and future housing needs.  Before the housing market collapse, the standard language in a Judgment of Divorce involving children often provided that the wife would remain in the marital home until the youngest of the minor children turned 18 years of age, at which time she would sell or refinance the marital home and pay her former spouse his 1/2 equity interest determined as of the date of the Judgment of Divorce.  These days, there may not be any equity as of the date of the divorce, and the parties are fighting over who gets the debt, rather than how to divide the equity.  Some couples even stay together after the divorce because they can’t afford to move into a new home or apartment until they sell the marital home.  Creative solutions can be achieved that work for everyone, if proper planning with the right professionals occurs before the divorce is final.

If you need a referral to a divorce attorney or other legal professional, contact Your Legal Resource for a free consultation and we’ll connect you with the right professional for your situation.

Lori T. Williams

Lori T. Williams is an attorney based in Birmingham, MI, licensed in 1989.  As owner of a legal referral business called Your Legal Resource, PLLC, Lori personally assists individuals and small businesses in need of legal advice or representation in Metro Detroit by connecting them with the right legal specialist to meet their needs.