CREDIT PROBLEMS CREATED BY DIVORCE ATTORNEYS.
From the perspective of a real estate agent.
George Souto offers good advice about the matter of home mortgages and how they are treated in divorce. See: Protect Your Credit During A Divorce. Over the years, this problem has surfaced in connection with prospective home buyers. I've seen this first hand. A prospective home buyer will inquire about buying a home and when asked about their credit, they mention that there is still a mortgage loan on their credit report for a home they owned either jointly or as TBE with a former spouse. The mortgage has not been refinanced out of the caller's name and both are still equally responsible for the payment. The explanation is always, "It was agreed to in the Separation Agreement". All I cou
ld think was, "Good Grief, don't divorce attorneys know anything about deeds of trust" They are gong to stay on a credit report until paid off.
"But, my attorney didn't tell me that I was still responsible". THAT IS THE BASIC PROBLEM.
Often, if the spouse that kept possession of the property has defaulted, the default and even a foreclosure is reported on the credit report of both parties, including the prospective home buyer.
When a couple decides to divorce and hire divorce attorneys, one of the first steps is a SEPARATION AGREEMENT. In the Separation Agreement is an agreement between the parties about who will pay what. One of the areas of agreement is often who pays the mortgage payment. When the parties agree in the Separation Agreement that one party or the other will be responsible for the mortgage payment, that is an invitation to disaster. The mortgage company doesn't care what the judge decrees. The mortgage company just knows that they have two names on the home loan account and they expect payment. THE MORTGAGE COMPANY IS NOT A PARTY TO THE SEPARATION AGREEMENT. The parties can agree to any division of payment they wish in the Separation Agreement and the judge can incorporate the Separation Agreement into the Decree of Divorce. However, if both the husband and wife are on the home loan, the debt is still recorded on the credit report of both the husband and the wife. Since the mortgage company has not agreed to have only one party responsible for the mortgage payment, both husband and wife remain responsible.
THE BIG PROBLEM is that, although the prospective home buyer is qualified, based on income, to buy a home, they do NOT qualify when the DTI ratio includes the mortgage payment on the home they jointly own with a former spouse. Often the former spouse still lives in the home, makes the payments and will continue to do so. MAKES NO DIFFERENCE. As long as the mortgage payment is on that prospective buyer's credit report, unless they have sufficient income to qualify with TWO MORTGAGE PAYMENTS they are not gong to qualify.
Over the years, we've had several buyers that do qualify, even with two mortgage payments in the DTI ratio.
1. The buyer will adjust their purchase price down so that they can qualify for both payments. They won't buy the SFH, they buy a townhome at a much lower price.
2. The former spouse sells the home and it's removed from the prospective buyer's credit report.
3. The former buyer refinces the home into their name only and the loan is removed from the prospective buyer's credit report.
A few years ago, we had one mortgage company approve a loan for a buyer whose spouse documented that she had made the payments timely for 2 years, had sufficient income to make the payments. Of course, part of the income from which the payments were made was from court ordered and payroll deducted child support, which would continue for more than 3 years. This former spouse was cooperative. Many are not.
That case was about 4 years ago. I doubt that it would be approved today.
Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988. Serving home buyers in Loudoun County, VA.
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