You are getting divorced, and you know you have to sell your house. You also know you need to have an attorney, but every time you open that monthly bill, you really don’t want to incur any more fees than you have to. Besides, you have a great realtor, why would you spend money talking to an attorney? You just want to sell the house fast, for top dollar, and then have the title company hold the proceeds until the personal property and spousal support get worked out.
I got a call from a potential client, who told me that Wife had filed for a divorce, but they were going to sell the house fast, for top dollar, and have the title company hold the proceeds while they worked out the rest of the details. I asked who was living in the house. He said that Wife was, but he just wants to get the house sold, he knows she will do whatever is necessary to sell the house fast. I asked if both of them had signed a realtor agreement. He said he thought so, but couldn’t remember the name of the realtor. I asked if they had agreed on an initial listing price. He was sure that they had agreement, but hadn’t actually talked about it. I then asked if the realtor had made repair recommendations in order to sell the house. There was a long pause, and he just said he wanted to sell the house fast for top dollar.
Now my good friend, John DeCosta, who is a great realtor, has one of two reactions, or possibly both. He either has a shudder that starts from his elbows and works its way up to his neck and ends up in his checks, or he immediately tells me that he is not going to take my referral, at least not until there is a much better understanding between the parties.
Deciding if the house will need to be sold, or if one party will keep the house
- Can the party who wants to stay in the house afford to keep the house? Is there a sufficient income stream that has been established?
Can the party who wants to stay qualify for a mortgage to take the other
party’s name off the mortgage?
- Cristina, is it a given that the person who wants to stay in the house will qualify, and take the other person’s name off the mortgage?
- Are there enough other assets to offset the equity of the person not keeping the house?
- Will the person not getting the house be able to get their equity out in a reasonable amount of time?
- Is it a good idea to not refinance the property, at least in the short term?
House will need to be sold
- Who is going to be living in the house while it is getting ready to market and sell
- Who will have the authority to negotiate and work with the realtor
- How is a realtor going to be selected
- How is the price going to be set, and then adjusted if it doesn’t sell
Get agreement on prelisting issues
- both parties need to sign the listing agreement. If one party wants to sell and the other party doesn’t, it isn’t going to work. The court does not have the authority to order the property to be sold until the final divorce judgment, and trying to push the process hoping that the other side will start agreeing with you is not productive. That may be part of the reason why you are getting divorced.
- there needs to be agreement that the realtor’s recommendations to get the house ready to sell will be done, as well as who is going to do the work, how it is going to be paid for, and how it will be dealt with in the end.
- there needs to be agreement on the listing price, and the parties’ need to get advice from their realtor as to what is a realistic price. I had a client who was living in the house, and his wife just knew in her heart of hearts that it was worth what she had heard about similar houses selling in a different neighborhood in 2007. The realtor wanted the listing, so she agreed to list it for $780,000 with no upgrades or repairs. Guess what? 8 months later, several thousand dollars in house payments that cause deficit spending and $6,000 in repairs later, it finally sold for $625,000. Magical thinking that if you just wait long enough, you will get your price just wastes everyone’s time.
- get agreement on what property is going with the spouse who is not living in the house, and get it out of the house. Delaying a closing because you haven’t figured out who is taking what property and when it will be moved is a great way to lose a sale.
Set conditions for selling the house
- The person in the house will keep the house in clean and marketable condition. The dishes will be done every morning and the toys picked up before you leave the house for the day. The house will be ready for a potential buyer walk through with an hour’s notice. Not 72 hours. Not 24 hours. One hour.
- if the realtor is able to do this, it can be helpful to have two people on the realtor team, one to talk to each side, and build up a relationship, so that each person will feel more willing to accept advice, without thinking that it is really coming from the other person that you are married to. Often mixed genders can work out better.
- set up an expectation as to how long you will list the house before you reevaluate the listing price. This depends on the market conditions. It used to be that you would always list higher than what you expect to get, so that you can negotiate to what you really want. That doesn’t work anymore in the market condition. If you are asking more than 150% of what the real fair market value is, you won’t sell it, because no one will even look at it.
- this is important for attorneys in a divorce; having a realtor who sets unrealistic listing prices because the client told her too doesn’t help anyone; the house sits on the market, the lawyer has to keep coming back to negotiate why the house isn’t selling, and the buyer ends up chasing the market downwards
- I have a client right now who listed his house for $850,000; Divorce was done, house ordered to be sold, Husband was living in the house and didn’t really want to move, Wife is waiting for the proceeds, because she has cancer and needs the money for medical bills; the house is realistically worth about $675,000 because there are some structural issues, such as need for updates, new roof, oil tank replacement; The house goes on the market in August, and sits; September comes and the price is reduced to $825,000; at this point, I get involved and ask the realtor to tell me what the market price is realistically; she tells me $750,000; October comes and the price is reduced to $750,000; November comes and the price is reduced to $725,000; Finally, an offer comes in at $650,000 and the realtor says to take the offer, that she knew that the price should have been $675,000 all along. The problem is that now the pool of buyers is greatly reduced, the market conditions have shifted downwards, and my client is still sitting waiting for money to pay for chemotherapy. The realtor wasn’t helpful by not giving me a straight answer
Have a dispute resolution system in place
- start with the realtor
- then have the attorneys talk about it
- have an agreement in advance that you will go to an arbitrator within 72 hours of an issue coming up, and that both parties agree to the arbitrator’s decision
- if the house is being sold after the divorce trial, go to the judge on an ex-parte basis, and ask for a quick decision with limited facts being presented. You may lose on whether you get the dining room table, but you won’t lose the sale.
What happens after the house is sold?
- Are bills going to be paid out of the proceeds?
Are escrow instructions agreed upon
- Title companies do not normally hold money for parties for months at a time. That’s not their job. If it is in question what is going to happen with the house sale proceeds, then have one of the attorneys hold it in his or her trust account until there is agreement, or decision of the court, and make sure there is agreement that the proceeds will be not be used pending agreement.
Have move-out plans and timing been made?
- Know where you are going to go once your house sells. In most cases, you cannot buy another house with the contingency that you are going to start selling your house. Develop a relationship with a mortgage broker, and find out if you are going to be able to prequalify. If the divorce is pending, and not final, you do not want to be surprised to learn that you may not be able to buy a house while the divorce is pending, particularly if there are issues of spousal support, child support and property division to be decided.
- Have personal property distribution been discussed and agreed upon prior to closing?
How divorce affects your ability to qualify for a mortgage
If a divorce has been filed, ownership is at issue, and makes mortgages
difficult to obtain
- Let’s start with the start of a divorce – filing for divorce.
- Once a divorce filing becomes public record, an underwriter views it as an existing lawsuit, with an unknown outcome. Since a borrower’s qualification is determined in part by the portion of income that is going to pay fixed, monthly obligations, and there is a possibility of spousal support or child support to add to those liabilities, the underwriting process stops and no loan will be issued until the final judgment is signed by a judge and entered into record. A lender cannot determine a debt to income ratio until there is a number placed on the liability. The mortgage company doesn’t know what is ultimately going to happen in the divorce as to a distribution of property, and until the divorce is done, you can’t refinance, or even get a new mortgage. This probably doesn’t make any sense to the parties going through a divorce. If you agree who is going to get the house, but have to work on parenting time issues, why can’t you take care of one issue at a time? You can sell the house by mutual agreement, but a lender will probably not agree to lend to you until the divorce is final.
- A final judgment is needed to proceed with a mortgage application
Payment history during the divorce can have an impact on future mortgage
- If you and your spouse are jointly liable for the mortgage, even if your spouse is the one living in the marital residence pending the divorce, you need to check with the mortgage company to make sure that the mortgage is being paid. If it isn’t paid, even if there is a court order that says your spouse is supposed to pay the mortgage pending the final divorce, the mortgage company may not care. The mortgage company wants the contract to be fulfilled, and if you are looking for a new mortgage, the new lender will most likely care about consistency of payment and your financial stability in deciding how to assess your risk. The same is true of any other debts which are jointly held – credit cards, lines of credit, utility bills, the list goes on. If your name is on the debt, and it doesn’t get paid, this greatly affects your credit score, and your ability to obtain refinancing or another mortgage.
“hold harmless and indemnify” means you have the right to a lawsuit
- Get it in writing what is supposed to happen with the house, the mortgage and other debts. More specifically, get it written into the judgment who is supposed to pay the debts, and when that person is supposed to refinance the debts to put the debts solely in that person’s name. Usually when one party is keeping the house, the mortgage is assigned in the divorce judgment to that party, and the other party is “held harmless and indemnified” from all liabilities associated with the residence. That means that you have the right to a lawsuit if the person doesn’t follow the court order. A mortgage company may not care that you have a right to a lawsuit. Rules, regulations and underwriting requirements specific to individual underwriters change frequently. You don’t know what rules, regulations or risk tolerance of an underwriter will be when you want to obtain a refinance or a new mortgage. If one party is keeping the house, make sure that your divorce judgment has a provision that specifies when the party is required to refinance the house to remove the name off the mortgage. More importantly, make sure that if the party attempts refinance and is unsuccessful in doing so, or fails to make the mortgage payment, that the court retains jurisdiction over the house until such time as the house is sold, and that the house must be sold. Make sure that there is a provision that requires that the house be sold if there are missed mortgage payments or unsuccessful refinance attempts, and has a specific timeline attached to it. If you specify the legal remedy, you can enforce the divorce judgment. If you don’t specify, or retain jurisdiction, you may be stuck in terms of not getting your name off the mortgage.
The amount and duration of support may determine ability to mortgage, as
well as payment history
- Cristina, how does duration and amount of support affect a person’s ability to obtain a mortgage, either from the person who has to pay, or the person who is entitled to receive?
- The amount and duration of support, both spousal support and child support can also be an issue for both the person paying the support and the person receiving the support. If you are relying on support to qualify for a loan, the duration of support must be long enough, three years in duration from the time of the loan to qualify for Fannie Mae (called a continuation). There is also often a requirement that there be a history of the support being paid. If you just finalized the divorce, you may not be able to use the support to qualify for a loan until you have received the support for 6-12 months, and can show that the support payments were made on time. If you are the person paying support, the amount of support that you are obligated to pay is going to affect your debt to income ratio, and may prevent you from qualifying for a mortgage. If you are the obligor, you also need to be able to show that there is no outstanding support obligation.
- If a divorce has been filed, ownership is at issue, and makes mortgages difficult to obtain
- Sometimes you can persuade an underwriter to take the risk of lending you money if you have written records. Don’t assume that after the divorce that your relationship with your ex-spouse is going to improve, and he or she is going to suddenly get more cooperative. If you weren’t getting along enough to stay married, it doesn’t get any better particularly after a divorce, especially when there is money involved. If you have an obligation to pay support, don’t count on your spouse agreeing to sign a satisfaction of judgment to prove that you are current on your spousal support. Keep records of all of your payments so that you can bypass an underwriter’s requirement of a satisfaction of judgment if your ex won’t cooperate. The same is true of any joint debt. If your spouse was supposed to pay off the credit card debt, and get your name off it, keep records of your agreements even if it is by “memorializing”, meaning that you write to your spouse and say “I am confirming that you agreed to get the Sears debt paid off by June 1”.