Face it. After 2 long years of struggling in a world that COVID-19 had turned inside-out, a lot of relationships have gone the way of the recently extinct Western Black Rhino. A study by FormsPal cited various studies in the United States that indicated an overall decline in marriage applications (6-20%, depending upon locale) and increases in divorce during 2021. How much are these increases? They’re as much as 5% over 2020 and 32% over 2019 with an incredible 7% of newlyweds deciding to take a dagger to the handfasting knot within a month.
These are profoundly shocking statistics, thanks but no thanks to a tiny bug who wants to use us for its own breeding grounds. Of course, the pandemic only constitutes part of the array of stressors upon today’s marriages that include domestic violence, child-raising issues, step-parenting issues, hostile in-laws, and of course, money woes. Often, money woes get tied to mortgage burdens while income sources dry up in a chronically shut down world.
If indeed you, as Homeowners/Borrowers, find yourselves on the brown-withered primrose path of divorce, It’s time to take stock in what you decide to do and to decide on these matters together. In a changing market, cooperation with each other is vital. To not do so can only exacerbate the trauma for both parties. In other words, if you imagine that you hate your spouse enough that you can inflict as much pain without also impacting yourself, think again.
BECAUSE FORBEARANCE WENT TO MARS INSTEAD OF GIVING YOU THE MOON
Unfortunately, the kind of forbearance Borrowers often relied upon in 2021 isn’t available in 2022. Deadlines passed:
September 30, 2021 for tenants applying on September 1 or later in the month; and
December 1, 2021 for homeowners to benefit from forbearance on mortgage payments.
It seems hopeless on the surface, but Sacramento, fortunately, acted proactively to help Homeowners still in financial hardship. Those facing an impending divorce may do well to look into a program that launched in January 2022: the California Mortgage Relief Program. For qualified homeowners, this new program offers what can seem like Gandalf appearing with a fresh army after the darkest night of the siege. To use the words of the state website, https://camortgagerelief.org/about/:
“Mortgage assistance grants are directly tied to the past due amount the homeowner owes their lender, up to a maximum of $80,000 per household. Funds awarded for mortgage reinstatement will be sent directly to the homeowner’s lender or mortgage servicer.”
That’s truly a substantial amount. If you’ve been paying, say $4,000 per month on a mortgage while struggling under forbearance programs, $80,000 can set you back on track with your Lender’s Servicing Company. Eligibility requirements haven’t reached the stratosphere either. Criteria for eligibility include (again quoting the website):
- Household income is at or below 100% of their county’s Area Median Income;
- Own a single-family home, condo or permanently affixed manufactured home in California; and
- Have faced a pandemic-related financial hardship after Jan. 21, 2020.
And meet at least one of the following:
- Receiving public assistance;
- Severely housing burdened; or
- Been denied an alternative mortgage workout option by their mortgage servicer.
A lot of Borrowers have faced exactly this set of circumstances. But what does this mean when facing divorce?
Consider this. Divorce is often a very complicated process, exacerbated when it involves child custody and a home, especially when that home has a mortgage like the vast majority do. If you get caught up on your mortgage, all that leverage lost when negotiating with a Lender or Servicer during the pandemic has been regained. You’ll need to be able to start afresh as Borrowers because divorce results in other changes of status with the Lender or Servicer that may cause your last dark hair to turn gray.
Cooperation will smooth out the process. Fighting can drag out divorces literally for years while legal fees pile up so high that, if those ironclad numbers literally consisted of steel, you could climb to the top and launch satellites by hand.
What follows are some serious issues to consider regarding real property and mortgages that cry out for decisive action:
CAVEAT DEBITORES
I’m surprised that this Latin term isn’t used more. Caveat emptor” means “Buyer beware.” “Caveat venditor” means “Seller beware.” As pertains to “Caveat debitores” (Debtors beware), people often don’t think through their position well enough. This is doubly true with divorce. Many couples opting for divorce realize that they can’t just delete one name from a mortgage. Only a Lender can do that and good luck for that to happen just for the asking. Mortgages don’t work that way.
There are 3 ways a decoupling couple can approach the dispensation of real property during these times:
- They sell the home outright.
- One spouse keeps the home and handles the mortgage himself/herself/theirself.
- Both parties remain on title and continue in cooperation with the same mortgage.
Why would divorcing parties stay on title like that? Perhaps selling isn’t in their best interest. They may decide to rent the property to cover the mortgage, splitting the remaining proceeds in the meantime. Parties don’t always agree on what a home is worth, either. An appraisal or 2 may be in order here. It should be noted also that if you hire your own Appraiser, a Lender can’t accept it. Why?
In the past, those hiring Appraisers have at times been known to push for a certain value, imposing bias and diminishing independence in the Appraiser’s assessment. A Lender must obtain an Appraiser through a 3rd party liaison like an Appraiser management firm pursuant to the federal Home Valuation Code of Conduct. The Borrower pays for the Appraiser at closing of refinance or sale. Naturally, this would happen sooner if done to provide information for divorce proceedings to a court.
If there’s equity in the home, one spouse may affect a cash out refinance and use the proceeds to buy out the interest of the other who signs a Quitclaim Deed to remove his/her/their name from title. At any rate, divorcees must either decide what to do with property they own or a court will decide for them, often pushing for a 50/50 split that may compel the divorcing couple to sell the home outright. If the divorcing couple can work out these matters in advance, they greatly streamline the process and save a lot of money and time. When 2 Borrowers on a mortgage decide to divorce and 1 keeps the property, then a refinance is typically necessary. Refinance is also typically necessary if a Borrower’s name changes which sometimes happens when the court issues a final Decree.
The only way anyone usually gets summarily deleted from a loan is when one Borrower dies. Check with your Lender or Servicer concerning their policy if death of a Borrower has happened or for any impending changes. Lenders and Servicers will work with you because they want to be assured that those monthly mortgage payments remain unabated till an orderly payoff through refinance or sale of the property. Most mortgages documents include a “due on sale” clause that should cause any divorcing couple to tread carefully.
More trends are coming into play right now that may impact your timeline for action. Indeed, you have no time to lose.
INTEREST RATES AS CHILLY AS SNOW DRIFTS IN BUFFALO
Given the current trend in interest rates, if you didn’t refinance in 2021, watch out!
During 2021, we saw a mini-boom in refinances. Interest rates were low enough to win a limbo competition. But this year, the landscape has changed with interest rates jumping to the highest level in almost 2 years. Back in March 2020, the Fed sought to offset the effects of the COVID-19 pandemic by dropping the Fed funds rate from 1.5% to 0.5%. This policy allowed interest rates on mortgages to drop to a national average of 2.65% for top Borrowers, loosening the mortgage landscape at a time when the economy needed a good dose of economic Geritol.
But because supply shortages drove a spike in inflation, interest rates also began to climb. As of January 21, the national average for mortgage interest rates rose to 3.56%. Mortgage interest rates fluctuate from day to day and your Mortgage Broker needs to advise you concerning what kind of refinance is available to you given your income, credit history, location, loan-to-value, and assets, for all these factors impact what a Lender is willing to offer you as a loan. These matters vary for everyone. The lending world is very complex.
But with consumer prices rising at a rate of 7% while the Fed set a goal of 2%, it plans to cool down this inflationary pattern with signals that it may raise the Fed funds rate anywhere from ¼ to ½ a percentage point in March, further tightening the mortgage market.
In other words, a Borrower cannot wait to get matters in order. If you need mortgage relief, act now. If you need to refinance, don’t wait another month. If you do, then you may find time and circumstance metaphorically laughing with the insolent glibness of Jim Carrey’s version of Stanley Ipkiss while wearing “The Mask.”
WHEN FORECLOSURE LURKS LIKE REGGIE THE ALLIGATOR AFTER ESCAPING THE ZOO AGAIN
Borrowers can face a pretty nasty situation when divorce issues couple with the threat of foreclosure. Let’s say that the Borrower isn’t eligible for the California Mortgage Relief Program, or worse yet, market conditions change so that the Borrowers owe more than the home is worth, something that happened quite often in the Great Recession of 2008. Let’s say that efforts the Borrowers had made for a loan modification failed to provide a workable solution. What’s left?
The Borrowers can return the property to the Lender or Servicer with a Deed in lieu of foreclosure. They can hire a competent real estate Broker to negotiate a short sale. They can let the home go into foreclosure and possibly file for bankruptcy. In each of these cases, the short sale is the best approach, for the Borrowers can become eligible for a new home purchase in a matter of months.
In a short sale, a Lender or Servicer accepts a lower sale price, taking a loss because non-acceptance would result in an even more costly scenario of foreclosure. Short sales can themselves become protracted processes. I remember working for a Broker negotiating a short sale in 2009 and it took almost a year for it to close. Closing a short sale can also become greatly complicated if the former spouses fight over every detail out of sheer spite. I recall one such couple who first filed for a divorce in 2008, went through a bitterly contested short sale, and issues still didn’t settle till 2014. It’s a costly and wasteful nightmare when that happens.
IN CASE YOU’VE BEEN WAITING
The short answer is: DON’T.
If you’re going down that demonically spooky road of marital dissolution, you need a real estate Broker able to negotiate mortgage financing and who has succeeded in affecting difficult transactions in divorce. You need contact with an Attorney or at least a Paralegal if you both know what you’re doing. Most of all, you need them now, not later.
You need Mariella Agrusa of iRealty Boutique. Remember that aforementioned divorce that took 6 years to finalize that involved that contested short sale? Mariella was the one who closed that deal and it says a lot about her savvy and persistence as a Broker. She has long advertised as a specialist in real estate matters involving divorce. It’s no understatement. A transaction like that seemed impossible, but by gum she did it. She even went to court to testify concerning the facts of the real estate transaction, something not all Brokers will do for their clients.
Mariella’s not only a REALTOR® licensed as a real estate Broker, but also licensed through the Nationwide Multistate Licensing System (NMLS), credentials you need to secure mortgage financing. Because she’s a licensed real estate Broker, she can also do the property management if the divorcees need to rent out the property.
But that’s not all. Mariella is a former Broker member of the Orange County BAR Association and has for years. That places her in a unique position of contact with Attorneys who can assist you in the often thorny process of divorce. She knows many whom she can recommend to you according to what you need.
Seeing the current financial trends, you literally have no time to lose. Call Mariella @ iRealty Boutique TODAY to get started. She can guide you through the intricacies pertaining to real estate and mortgages and refer you to the right people on the legal end. In the years I’ve known Mariella and admired her skills, I’ve seen her pull off some incredible deals.
You need her. Call her and start putting your nightmare behind you.
