Divorcing Your Mortgage December 2015

K aren Or r MLO 40351

D IVORCING Y OUR M ORTGAGE

December 2015 Issue

Not only can divorce lead to emotional strain, it can also cause all sorts of financial

problems. All those shared accounts and co-signed loans that once seemed so romantic

are now the cause of major issues.

While divorcing spouses may not seem willing to work with each other, they need to

understand the effects of negative credit. They need to understand the negative effects

long after the divorce is final.

What if there is a late history of mortgage payments?

What if the home is sold in a Short Sale or is Foreclosed upon?

What if one party makes a late payment AFTER the divorce on joint liabilities?

These are common everyday questions and occurences in divorce situations and the more

you can educate your clients, the more prepared they are for success with credit post

divorce.

The Lasting Effects of Negative Credit

A D V I S I N G Y O U R C L I E N T S O N C R E D I T

Don’t assume your clients will either play nice and don’t assume they fully understand what happens

with their credit during the divorce. When joint credit is obtained, a contractual agreement is made to

pay the bills. A divorce decree doesn’t change that contract. When clients divorce—each spouse re-

mains fully liable for all joint debt as well as their new independent debt.

There are ways to prevent credit obligations from making divorce more difficult, and re-establish inde-

pendent credit lines:

Communication between soon-to-be-ex-spouses.

Ask each company and bank that extended joint credit to transfer the debt to the name of the

person who will be responsible.

Keep joint bills current—even missed payments made years after the divorce will be reported for

all individuals associated with the account.

Ask the credit grantor to remove a spouse who is only an authorized user or close the joint ac-

count to additional charges.

Advise creditors that one spouse is not responsible for debts charged by the other spouse on

joint accounts after the divorce.

Close as many joint accounts as possible.

Failure to make a clean separation of debt and obligations can haunt both clients

well after the divorce is final.

D I D Y O U K N O W ? ?

How much is the

marital home worth?

A licensed appraiser can probably give you the most reliable figures about the value of a home. The downside of an appraisal is that it may cost several hundred dollars. However, getting a true picture of a home’s value can save thou-sands when negotiating a divorce settlement.

Instead of an appraisal, real es-tate professionals tend to value real estate through a compara-tive market analysis (CMA). A CMA involves comparing the home with other homes in the area that have recently sold or been listed for sale. One of the benefits of a CMA is that it will cost little or nothing to have it done by a real estate profession-al.

The final option which some couples utilize is to do their own research, often using online re-sources to do so. This is probably the least reliable method of valu-ing a home, as it is not being performed by a real estate pro-fessional who is well-versed in

Karen Orr, MLO- 40351

Mortgage Advisor

1705 Dock St, Ste. 1711

Tacoma, WA 98402 Direct 253.228.6800 [email protected]

Page 2 Page 2 Page 2 Karen Orr , CDLP—Mortgage Advisor

www.newamericanagent.com/karenorr

Common credit concerns found with divorcing couples:

Mortgage payment is missed. Whether an oversight or intentional, when a mortgage payment is missed there are more reper-

cussions than just a negative hit to the credit score.

A single 30 day late mortgage loan payment can cause a credit score to drop by as much as one hundred points.

A single 30 day late mortgage loan payment may prevent you from obtaining mortgage financing from 12 months up to

24 months depending on the loan program and investor.

Marital Home in Foreclosure Proceedings. Many times in a divorce situation there are financial struggles and often times the

marital home is involved in foreclosure proceedings.

If foreclosure proceedings have already begun the best option and sometimes the only option is to contact the current lend-

er/servicer to determine if there is a loan modification or alternative plan to salvage the marital home if this is desired. Once

the foreclosure proceedings are underway, new traditional mortgage financing is very difficult if not impossible to obtain.

Even if the foreclosure proceedings were resolved, the recent mortgage payment history stated above will be a factor in ob-

taining new financing.

Joint Marital Debt Retained Post Divorce. When it is currently not possible or not the best option to close out joint marital debt

the court may order one party responsible for the full payment of specific debts. When this occurs, the debt is considered a

“Contingent Liability” and for mortgage financing purposes, contingent liability is not typically included in the debt to income ratio for

the party not responsible for the joint marital debt. But what happens if the responsible spouse makes a late payment on the joint obli-

gation?

The credit score of both spouses will be affected negatively as both individuals are still liable to the creditor.

For mortgage underwriting purposes, if the debt was ordered to be paid solely by one party per the Marital Settlement

Agreement, the payment history of the debt after the contingent liability was ordered may not be considered by the mort-

gage underwriter.

Contingent Liability guidelines are applicable to all joint marital debt including mortgage financing, auto loans, install-

ment loans, credit cards, etc.

FREE Credit Reports

Many times, divorcing clients will provide their attorneys with a list of their existing debt; however, the safest way

to make sure no debt is overlooked, it is advisable to obtain independent credit reports for both divorcing parties.

In 2003, Congress passed the Fair and Accurate Credit Transaction Act as a way to address identity theft. FACTA

is an addendum to the Fair Credit Report Act.

Under the FACTA, consumers have the right to request one free copy of their credit report from all three bureaus:

Experian, Equifax and TransUnion.

Congress also created a website where consumers can order all three reports in one place:

www.annualcreditreport.com

Tip: Advise clients to maybe pull one bureau every 3-4 months as a way to monitor their credit for free on a

constant basis.

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Karen Orr , CDLP—Mortgage Advisor

Protect Your Identity

It is a sad truth, but many couples go through messy divorces that leave both parties as

bitter enemies in the end. When this is the case, it is important to consider the potential

damage that a disgruntled spouse could do to your credit. Armed with your Social Securi-

ty number, birth date, and other financial details, an ex could potentially steal your identi-

ty and cause significant damage to your credit.

After a contentious divorce, you should take a few steps to guard against any possible

identity theft crimes before anything can happen. Sign up for credit monitoring that im-

mediately alerts you to changes in your credit data. Be on the lookout for suspicious mail and signs that new accounts have been

opened in your name. Change your online banking passwords and request that your account numbers are changed. If you suspect

identity theft, contact the credit bureaus immediately and place a 90-day fraud alert on your credit reports.

Most importantly, simply be aware of your possible risk for identity theft. According to a 2013 identity theft survey by the Better Busi-

ness Bureau, 50% of identity thieves turned out to be relatives, close friends, and neighbors of the victim. Denying that your ex could

steal your identity may cause you to miss important early signs of fraud.

Going through a divorce can be very stressful. Trying to keep yourself together is hard enough without worrying about your financial

situation. However, awareness of major risks to protect you, your credit report and your credit scores will be extremely helpful.

You do have the option to repair your credit report and make sure that all accounts are accurate and reporting properly. If the credit

bureaus do not have a certain amount of paperwork in your files [for each account] then these accounts can be disputed. If you find

yourself in the midst of negative reporting on your credit report then you should consider credit repair services.

Understanding your Credit and the Factors that Influence It.

As you might expect, payment history is the most

Influential component and this is followed closely by the amounts

you owe. To lesser degrees, the length of time that you’ve utilized

credit, the number of new accounts or inquiries that may have

and the various types of credit accounts that you hold will also

have an impact on your score.

The overall importance of any of these factors can be

further influenced by the entirety of the information

contained in your report. As such, certain patterns,

occurrences or items can be measured differently

dependent on any other factor or combination. There can be

great complexity in the way that the scoring formulas work and

it’s for this reason that they are difficult to

assess.

Copyright 2015 All Rights Divorce Lending Association, LLC

The information contained in this newsletter has been prepared by, or purchased from, the Divorce Lending Association, LLC and is distributed for consumer education purposes. CDLP Certification is issued by the Divorce Lending Association, LLC. Content is current as of

date of publication and is considered to be reliable but not guaranteed to be accurate.

W h y y o u N e e d a C e r t i f i e d D i v o r c e L e n d i n g P r o f e s s i o n a l ( C D L P ) o n Y o u r P r o f e s s i o n a l D i v o r c e T e a m .

A professional divorce team has a range of team players including the attorney, financial planner, accountant, appraiser, mediator and yes, a divorce lending professional. Every team member has a significant role ensuring the divorcing client is set to succeed post decree.

A Certified Divorce Lending Professional brings the financial knowledge and expertise of a solid understanding of the connection between Divorce and Family Law, IRS Tax Rules and mortgage financing strategies as they all relate to real estate and divorce. Having a CDLP® on your professional divorce team can provide you the benefit of:

A CDLP® is trained to recognize potential legal and tax implications with regards to mortgage

financing in divorce situations.

A CDLP® is skilled in specific mortgage guidelines as they pertain to divorcing

clients.

A CDLP® is able to identify potential concerns with support/maintenance

structures that may conflict with mortgage financing opportunities.

A CDLP® is able to recommend financing strategies helping divorcing clients identify

mortgage financing opportunities for retaining the marital home while helping to ensure the ability to achieve future financing for the departing spouse.

A CDLP® is qualified to work with divorce professionals in a collaborative setting.

A CDLP® can provide opportunities in restructuring a real estate portfolio to increase available

cash flow when needed.

A CDLP® maintains a commitment to remaining educated and up to date in the ever changing

industry guidelines and tax rules as they pertain to divorce situations.

A CDLP® is committed to providing a higher level of service to you and your

divorcing clients.

The role of the CDLP is to help not only the divorcing client but the attorney and financial planner

understand the opportunities available as well as the challenges divorce can bring to mortgage

financing during and after the divorce. When the CDLP is involved during the divorce process and

not after the fact, many potential financing struggles can be avoided with valuable and educated

input from the Certified Divorce Lending Professional.

“Nothing matters more in winning than getting the right people on the field. All the clever strategies and

advanced technologies in the world are nowhere near as effective without great people to put them to

work.” - Jack Welch, Winning

This is for informational purposes only and not for the purpose of providing legal or tax advice. You

should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are

estimates provided for informational purposes only, and are subject to market changes. This is not a commitment to

lend. Rates change daily - call for current quotations.

Karen Orr, CDLP

Mortgage Advisor

New American Funding

1705 Dock St, Ste. 1711

Tacoma, WA 98402 Direct 253.228.6800 [email protected]

NMLS ID 40351

Corp NMLS ID 6606