SUGGESTED DECREE LANGUAGE FOR REQUIRING REFINANCES AFTER FINAL DIVORCE
Many attorneys yield that a court cannot order a lender to advance funds so therefore, it is not possible to truly require a party in a divorce to refinance the mortgage note (in order to remove the ex from its liability and, possibly, to include a buyout for spouse’s interest). The premise is correct but the conclusion is wrong. Refinances can be – effectively – required. And here’s how to do it. As in much of law and life, it’s not in the requirement, it’s in the “or else.” It’s called incentives.
Moreover, the purpose of a refinance of a mortgage debt (emanating from a divorce) is NOT the refinance transaction itself. It is, more often than not, to relieve a party of a liability on an asset which they no longer own. “Get me off the mortgage [note]” is NOT an unreasonable request or demand.
I will not deal herein with THE MOST IMPORTANT ISSUE – which is HOW it is done and WHETHER you are satisfied before final divorce THAT it is done – in other words how to turn white paper into green money. Please bear in mind that such consideration is VERY important.
But, here I will give suggested language to put teeth into the requirement for the home-owning party to refinance the debt and thereby relieve their spouse of its liability.
Provisions for Refinance or Sale of Marital Residence
IT IS ORDERED AND DECREED that PETITIONER/RESPONDENT refinance the property and all improvements located thereon at [Legal Description] and more commonly known as 1234 Main Street, Tombstone, Tarrant County, Texas, into the sole name and liability of [same PETITIONER/RESPONDENT and any co-signers or co-borrowers which may be qualified and willing] on or before [1 X days after entry of this final decree], (optional>) and pay OTHER PARTY the amount of $XXX,XXX.XX.
OTHER PARTY is ORDERED to cooperate with PETITIONER/RESPONDENT to timely execute any documents required to effectuate the terms of this provision 2 upon presentment.
In the event PETITIONER/RESPONDENT fails to refinance the property before [X days after entry of this final decree], and/or fails to pay OTHER PARTY the amount of $ XXX,XXX.XX on or before X days after entry of this final decree, IT IS ORDERED that the property and all improvements located thereon at [full legal description] and more commonly known as 1234 Main Street, Tombstone, Tarrant County, Texas, shall be sold under the following terms and conditions:
- 3 The property shall be listed for sale with a duly licensed real estate broker having sales experience in the area where the property is located, provided further that the real estate broker shall be an active member in the Multiple Listing Service with the [Local] Board of Realtors.
- The property shall be sold for a price that is mutually agreeable to [PETITIONER and RESPONDENT]. If [PETITIONER/RESPONDENT] and [other PETITIONER/RESPONDENT] are unable to agree on a sales price, the parties shall follow the recommendation of the real estate broker.
- 4 On the application of either party, the property shall be sold under terms and conditions determined by a court-appointed receiver. [Please retain an ethical receiver who operates in the interests of the court but not against the interests of the home owners or the marital estate. See my thoughts about receivers on my blog at www.TheMortgageInstitute.com/blog.]
- PETITIONER/RESPONDENT shall continue to make all payments of principal, interest, taxes, and insurance on the property during the pendency of the sale, and PETITIONER/RESPONDENT shall have the exclusive right to enjoy the use and possession of the premises until closing. All maintenance and repairs necessary to keep the property in its present condition shall be paid by PETITIONER/RESPONDENT.
- The net sales proceeds (defined as the gross sales price less cost of sale and full payment of any mortgage indebtedness or liens on the property) shall be distributed as follows:
- First, OTHER PARTY shall receive $XXX,XXX.XX to satisfy the judgment awarded to OTHER PARTY herein above.
- Second, the remaining funds shall be awarded to PETITIONER/RESPONDENT.
——- OR ——
- Net proceeds shall be divided equally.
1 I do not recommend calendar dates here unless such date is a) in the distant future or b) required by some other factor or law or reasonable purpose – rather, tie it to X days after entry of final decree. Now, the question is “how many days?” That’s why you need to call me. Why are you just pulling this number out of your…well, you know? One of my team member Divorce-Lending Specialist Professionals needs to tell you exactly how long it will take. It could take from, literally, 2 days…yes, we close loans 2 days after final divorce because we don’t do what other lenders do and wait until final divorce to get to work…to 2 years.
2 “upon presentment” is a good idea because the execution of certain documents at time of loan closing is often very time sensitive. The lending industry with its minimum and maximum numbers of days for this and that does not wait on a court’s order like “execute within 3 days or 7 days of presentment…”
3 ”The property shall be listed for sale with a duly licensed real estate broker having sales experience in the area where the property is located, provided further that the real estate broker shall be an active member in the Multiple Listing Service with the [Local] Board of Realtors.” While this may sound reasonable, it is still a formula disagreement and maybe disaster. I advise that the attorney recommend one of our divorce / real estate professionals or someone who is savvy with these matters, not just a real estate agent who happens to be available and willing. Such a person may well be qualified. But, the idea is that the realtor should know his/her way around divorce and even receivership. And, there is great benefit to naming that realtor at the time of final divorce with some proviso that another can be retained if he/she is not available at the time.
4 “On the application of either party…” Two things about receivers. Depending on the case, it could be advisable that the decree “leap-frogs” over the real estate agent phase and goes right to receivership appointment. It is the receivership that really puts teeth into the requirement to refinance by date certain. Moreover, the real estate agent and the receiver can be the same person. There is no conflict of interest. Any person or professional can act unethically. But, there is no inherent conflict between a realtor who seeks the highest and best price for their customer’s property and that same realtor who acts in the interest of the court. That is, there is nothing in acting in the interest of the court that compels an agent to act against the interest of the homeowners. One would have to exercise bad motives or judgment or ethics to achieve that dubious characterization. [Please retain an ethical receiver who operates in the interests of the court but not against the interests of the homeowners or the marital estate. See my thoughts about receivers on my blog at www.TheMortgageInstitute.com/blog.]
Noel Cookman, The Mortgage Institute 2019