Working with divorcing clients requires patience and knowledge!
Having been introduced to the opportunities in the Divorce Real Estate niche in part 1 of my post, let's look at some of the required knowledge a real estate professional should have in order to be successful working with divorcing clients. Knowledge required not only to build a name for yourself as a real estate divorce professional, but required knowledge to protect your license and your commission!
I"m going to reference the puzzle image again from Part 1 as I believe the image is a powerful visual reminding us how connected and disconnected the pieces of the divorce puzzle are.
The knowledge you need to succeed in the divorce niche has to include knowledge of divorce law, IRS Tax law, mortgage financing as well as real estate. No matter what your niche or whether you stick to practicing traditional real estate - you can never claim to be an expert in your industry if you only know your piece of the puzzle and lack the understanding as to how it is impacted by the other pieces. Simply put - would you consider yourself an expert Buyer's Agent if you had no idea how mortgage financing worked?
Let's look at a couple pieces of the required knowledge you need to know to really differentiate yourself from your competition.
ATROS - Automatic Temporary Restraining Orders. When a petition for divorce is filed an automatic retraining order goes into effect in almost every state. The temporary restraining order prohibits either party from selling, transferring ownership, or hiding real property (yes, real estate). If a property is sold during a divorce where an ATROS was in place the buyer may need to give the property back if the court so orders because the sale may not have been a legal sale. (This may be true even if the ATROS hadn't yet been filed by the clerk of court but the intent was there!)
Assume you have a new client walk in the door and tells you that he has an investment property that is in his name only and asks you to list and sell the property. If the seller is involved in a divorce proceeding and does not have the courts permission to sell the property it may not be a legal sale and the fact that you didn't know it was a divorce situation doesn't matter. If he does inform you that he is involved in a divorce, always ask if he has the courts permission to sell the property and request a copy of such permission for your file.
What if you are working with divorcing buyers?
When you have a buyer walk into your office looking to purchase a new home and they inform you that they have just gotten a divorce, it is imperative that you work with a mortgage professional who understands the various guidelines and work arounds in divorce situations. The most basis understanding centers around income vs. qualifying income.
When a newly divorced spouse is receiving maintenance and or alimony and they need to include this income for mortgage qualifying purposes - it might not be that easy!
For conventional mortgage qualification, maintenance and child support requires 6 months of receipt of income. 6 months of timely payments - not sporatic. It also requires proof of 3 years continuance from either the date of application for Fannie Mae or from the date of loan closing for Freddie Mac.
The challenge here is that maintenance is usually granted for only 3 years and once you have your 6 months proof of receipt, you no longer have 3 years of continuance. There is actually a connection between the 3 years of maintenance and the IRS. The IRS states that if maintenance significantly decreases within 3 years of receipt it may be considered child support rather than alimony and there is the possibility of a tax recapture for the spouse deducting the amount paid as alimony.
Your first question to a newly divorced buyer or one who is in the process of a divorce should be, "Will you be using maintenance and or child support as qualifying income?" If so, ask them how long they've received it thus far and how long it will continue. No sense in spending your time showing homes if they can't purchase for 6 months!
There is so much more to working with divorcing clients and no way I could share everything within a short blog post. If you have an interest in exploring the divorce real estate market further, I encourge you to visit www.divorcelendingassociation.com - you will find information available from a downloadable eBook to a full certification program as well as other resources.
Remember - Knowledge is Power and Power produces Results!
Jody Bruns
Comments(3)