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Mortgage and credit in divorce

MORTGAGE AND CREDIT IN DIVORCE

16.2 requires disclosures of financials. At counsel you should have a list for your paralegal of all documents you will need to gather from your client in order to produce the required disclosures. Have your secretary get all of the deeds and titles to all property, amongst other financials. In this way you can see for yourself if there has been a property title transfer. As your client often will not know what they think they do know.

Understand that there are tax exemptions for married couples who are selling their homes. You need to know what the tax implications of the capital gains on the house will be. You need to know what the financing terms are. You should understand what value can be achieved by way of a refinance of the property. Talk to your client and get a feel from you client as to where they are going to be in one year, three years, and five years. You want to know this information so you can point them in the right direction as to what they may want to consider if they wish to maintain the marital residence.

Understand the different types of financing is important. Be advised that the financing for loans of under or over $417,000 will be different. The financing terms between the two are handled completely differently. The mortgages of over $417,000 are considered to be jumbo loans. For loans under $417,000 those loans will typically be owned by Fannie May or Freddie Mac. Know that many banks such as Wells Fargo may be servicing the loan but that they don't in fact own the loan. Freddie May and Freddie Mac use basic banks such as Wells Fargo to service the loan only.

Know that the ability of obtaining a loan will depend mostly on your client's credit score. The fact that clients are in the divorce process will have no bearing whatsoever on their eligibility for a loan. As counsel you need to always argue that a mortgage paying spouse maintain the mortgage on the house for the reason that a default on the payment is going to hurt your client's credit score. If your client's credit score is damaged that will of course make it difficult for him or her to secure a residence post-divorce.

As counsel you should always obtain the credit report of both your client and the opposing party. This can be useful for a variety of reasons. One of which is that this will allow you to know your client's ability to obtain financing post-divorce. The other is that you can use this credit report to find out all sorts of information regarding the other spouse. For instance, that credit report will tell you any attempts made to acquire financing and at what institutions they were made to, by that other spouse. Thus this is a good discovery tool.

Divorce will not affect credit score. No that no amount of assets or income can overcome a client's credit score. This is the case for traditional loans as least. The three pillars of lending considerations are income, assets, and credit score. Credit score is thus the most important of the three pillars.

Credit scores are determined by a variety of factors. These include the diversity of the credit lines, the duration of the credit lines, and the history of maintaining payments on those diverse credit lines. Thus better credit will be obtained by having more credit lines and a diverse array of credit lines. For instance a person could have a mortgage, car financing, credit cards, etc… Thus they have a diverse array of credit. The longer those credit lines have been open and the consistency of those payments will determine an individual's credit.

If your client is not in a position to maintain the mortgage you may need to advise on ways of letting the home go. Some practitioners think that loan modification is always ideal to a short sale. Be advised that loan modification can include debt forgiveness. This can have the same effect on an individual's credit as a short sale. Thus don't be under the assumption that a loan modification is a better alternative than a short sale. Be advised that many jumbo lenders will not even extend financing to individuals who have short sold a property or undergone a loan modification if that modification included a debt forgiveness.

Understand that lenders will look to not only the amount of income an individual receives but they will also look to the sources of that income. This is important when considering alimony. For instance, recipients of alimony won't be able to use their alimony income for the purposes of showing income unless they have received this alimony for at least a period of six months. Of course alimony obligors will be hurt if they have an alimony obligation as this obligation reduces the borrower's disposable income. This obligation will be taken into consideration by the lender. With regard to child support, the lender won't consider this child support income unless the recipient will in fact receive this child support for at least a period of three years. Thus if the kids are 16 years old while the applicant seeks financing and thus will emancipate within two years then this child support income will not considered for the benefit of obtaining financing.

Self-employed individuals must have at least two years of self-employed income in order for that income to be considered by the creditor. Self-employed income is income that is derived from business owners who have more than a 25% interest in their business. This same two year requirement will also be a requirement for seasonal employees. They need to be able to demonstrate that they have received this income for the same type of work for at least two consecutive years. Upon demonstrating this then that income will be considered for financing purposes.

Be advised that if the parties are still married and one of the spouses applies for financing that only that applying spouse's income will be considered in most cases. Thus if the other spouse has considerable income it will be of no significance. This is the case of course unless both spouses sign on as obligors on the note.

The waiting period for a conventional loan following a foreclosure is seven years. Thus lending will not even be feasible following this seven year period after a foreclosure. Generally speaking foreclosure should always be last resort for a client who is having trouble keeping up with a mortgage. This is just some general information on the subject. Understand that I, Eric Roy, am not involved in the mortgage industry. Rather, I am an attorney and the information above is just some basic knowledge which can be useful in counseling those clients who have current or future mortgage concerns.

Categories: Family Law