NOTE: With wildfires still raging across California, underwriters are still requiring “Fire Certifications” for every property that is near a major fire. This is simply photo evidence that a property remains undamaged by fires.
Divorces are surging as a result of the COVID crisis.
Online inquiries have jumped over 30%, according to this column, and filings themselves have jumped 34% year over year.
Apparently, couples need to spend much less time together if they want to have a happy marriage. 😊
I knew things were serious when even Mary-Kate Olsen filed for divorce.
Here is a short New York Post article by a psychologist that explains why the COVID crisis and lockdowns led to so many divorces.
Anyway – divorces have a significant effect on both real estate and mortgages b/c they can easily kill deals and make qualifying for mortgages much more difficult.
A pending divorce is also a signal that there is a 50% likelihood that the couple’s property will sell within the next 12 months.
In any case, I am repeating some key information in regard to divorces that all of us should keep in mind:
- A divorcing spouse can quit-claim off title, but NOT off the loan. The only way a spouse can get “off a loan” is with a full refinance. Many spouses mistakenly believe they are “off the hook” once they are off title, but that is not the case; spouses are obligated to pay the mortgage whether they are on title or not in most cases.
- If a spouse wants to buy a new home before the divorce is finalized, the non-buying spouse must sign a quit-claim. Hence, it is important that the spouses are “cordial” before one spouse starts house-shopping. Otherwise, the deal will die if an unfriendly spouse refuses to sign the quit-claim.
- We need a court-ordered payment history before we can use spousal support income of any kind. Fannie and Freddie require six months, and FHA requires 12 months. A history of voluntary (not court-ordered) payments will not work in most cases.
- We need three years of future payments before we can use spousal support to qualify. For example, if a spouse only gets child support that will end when the kids are 18, we cannot use the income if the kids are 16 and 17.
- Once lenders find out about a pending divorce, transactions cannot close until they receive a court-approved settlement agreement. Sometimes borrowers try to hide divorces but that opens up questions as to why they want cash out, or are buying another home.
- Divorcing spouses can hire private judges to expedite settlements in order to close mortgages sooner. This can cost as little as $500 in some cases. Expedited settlements are often necessary simply to close a transaction when marital debts are excessive, when support obligations or benefits are unknown (and underwriters need to know), or when a spouse refuses to quit-claim.
- Increasing a mortgage to buy out a spouse is not considered “cash out” as long as all cash proceeds go to the spouse getting bought out. This rule allows for higher loan-to-value limits and better loan terms.
- Spouses must account for all marital debt when qualifying unless there is a court order or decree specifically stating which spouse is responsible for which debt.
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