Why I Preview Drafts of the Divorce Decree
In my Assessment/Approval – my report to you about a client’s qualifications and conditions for mortgage financing – I always include the following paragraph in red
Please copy us on drafts of the decree before they are executed by the parties. We will pre-underwrite this draft to assure a smooth transaction. Pertinently, divorce decrees are universally underwritten as part of a loan file for any applicant who has been divorced. In any case, the client’s decree will most certainly be underwritten in this instance. ‘Tis better to pre-underwrite than to be caught by surprise.
The paragraph provides a brief explanation as to why I want to review the decree before its execution. And I will discuss other reasons and benefits to a divorcing borrower (immediately or in the future) in future newsletters on the subject.
The major reason I need to preview the divorce decree – and a lot of folks do not know this – is because an underwriter will read every word of it. Not only will the underwriter review it but he/she will consider everything in it as relative to the loan file.
Here’s a good example. A divorcing husband purchased a car for his soon-to-be ex-wife in his own name and credit – NOT using her name/credit to obtain the loan. In their thinking, this would help the wife qualify to refinance the mortgage in her own name, the debt not showing on her credit report. (The liability, obviously, did not appear on our borrower’s credit report). But, the proposed divorce decree assigned the debt to wife.
When I discussed this with the husband – and why the wife might not qualify with that extra debt – he eventually understood but initially had a difficult time comprehending that a debt which does not appear on a credit report still counts against the borrower.
You see, in every other situation – in normal circumstances – the only way to know what debts must be counted against the all-important debt ratio is for the lender to examine the borrower’s credit report. This couple thought they could “game the system” by simply getting a loan in the other’s name, thereby exempting it from the borrower’s credit report.
This is a major reason lenders require the entire, conformed divorce decree when underwriting a file – the detection of all debts.
And this is why I preview or PRE-underwrite the decree before its execution. As you know, I will have already been processing the loan for the client – way before every other lender wants to even take an application.
And this, my friends, is how we assure successful closings – we do not throw things to the wind and hope for the best. We give the entire settlement meticulous review and make recommendations accordingly.