Mar 11 2013
With each passing day, mortgage lending requirements become more demanding for my mediation and collaborative divorce clients. Divorcing couples instinctively know that it’s more expensive to live under two roofs than one but may assume that there will be enough community property to enable both parties to own separate homes.
The other common assumption is that the existing mortgage on the family home will be continued by the occupying spouse and the departing spouse will be released from the legal obligation to pay-off that mortgage. Otherwise, the loan will continue to show up on the departing spouse’s credit report as a loan for which he/she is responsible. Achieving the goal of home ownership for the departing spouse typically requires the occupant of the family home to refinance the existing mortgage because the current mortgage holder will rarely, if ever, agree to release one spouse from liability to repay the mortgage debt.
Add to this scenario the common expectation of spousal support in the situation in which one spouse is a high income earner while the other spouse is a non-working or low income homemaker. This completes a typical fact pattern presented to the mediator. The challenge is to help the clients achieve their collaborative divorce goals and structure a property settlement agreement (PSA) that will pass muster with the mortgage lenders?
If a mortgage banker is involved early in the mediated divorce negotiations, the mortgage issues can be identified and addressed. Refinancing the existing house mortgage may be delayed because of a mortgage lender requirement for a stream of monthly payments into a separate bank account of the spouse receiving spousal support. The mortgage advisor can evaluate whether the proposed PSA will leave enough separate income for the departing spouse to qualify for a mortgage. The PSA details can be structured to pass muster with the mortgage underwriter who will review the loan application.
Sometimes, after exhausting all options, it becomes clear that one or both parties cannot qualify for home ownership for a period of time under the more stringent rules of current mortgage lending. Even when home ownership needs to be put on hold for a period of time, however, this is hardly the end of the world. Knowledge is Power. I try to keep in mind that despite bumps in the road, a mediated divorce still allows clients to achieve the critical goal of moving on with their lives while treating each other relationally and with respect.