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Great Question from one of Texas's finest family law attorneys.

Hello Noel,

I am working on a proposed Agreed Final Decree and am hoping you can help me with some language.

The goal is for Husband to remain in the home and refinance the home to remove Wife's name from mortgage. Wife also needs to receive 1/2 of the equity at the time of refinance. Wife wants the equity to be determined by the appraisal that is done as part of the refinance process. I assume that I cannot then do an Owelty since there is not an exact amount.

Is there form language that you suggest for this type of arrangement?

Thank you!
Attorney

 

Dear Attorney,

So good to hear from you.

First of all – CONGRATULATIONS for knowing what so many lawyers and judges and mediators do not know:

that the only appraisal that matters is the one ordered by the lender as part of the loan process.
You are in the TOP 1%! I’m serious.

You can actually do what I typically recommend that you NOT do – that is, specify the Owelty as “half the equity.”

This, then, creates the need for the parties to work together in a reasonable fashion after their divorce and arrive at that dollar amount. That is why I do not recommend it…typically.

But, it’s more important that the buyout be specified as an Owelty than it is to, perhaps, not even specify it that way and the borrower be stuck with Texas Home Equity (cash out) restrictions. And, it will encumber the property with that Owelty interest even if the Owelty is not “perfected” in deeds that get filed. The title examiner in a future transaction will read the divorce decree. I recommend filing the decree in property records IF there is no action on paying wife very soon after final divorce.

So, as close as you can get to a workable formula, the less chance there is of contention or dispute or misunderstanding post divorce.

I have an opinion about formulas that I believe is reasonable and defensible. It is based on what I have termed “accessible equity” rather than “raw equity.” It’s not perfect but it’s understandable and fair (or so it seems).

Look at this attached spreadsheet > EquityDeterminationWorksheet You will see that the equity in the case of a typical sale (when sales price and appraised value are the same) is very close to the equity as determined by my 95% “accessible equity” formula. I use the 95% method because conventional financing will not finance any higher than 95% of a home’s value/price. One must make at least a 5% down payment in a purchase or finance no more than 95% LTV ratio in a refinance.  I highlighted the two formulas in yellow.

Now, here’s the punchline – and it is more than shameless commercialization on my part. It will absolutely provide protections for everyone and solid information about actually “turning that white paper into green money.”

Have the husband call me…immediately. And let me structure the loan. If he hustles, we can have appraisal ordered by the end of business today. As well, I can preliminarily “design” the loan with suggested buyout options. No need to bore you with details just yet. But, there are two main reason to do this if you can –

#1. I get more business – I’m not stopping until we close more loans than anybody in history. It’s true – I’m a shameless capitalist. And, all I try to do is work with divorcing folks on their financing. So, I've carved out a very special niche and stuck with it for 17+ years. You'll see - the need is HUGE! And, candidly, it's a crusade with me at this point.

But, what is the benefit from your and the parties’ perspective?

#2. You will KNOW exactly how much the appraised value is before final divorce (assuming you weren’t going to finalize in the next 5 business days) and everyone will KNOW that the loan can close, when it will close and when wife will receive her money.

That's my story - I'm stickin' with it. Thanks for writing. I appreciate you.

Noel Cookman

For the most part, I am in the position of qualifying divorcing homeowners for mortgage financing. I work with the party who must refinance and remove the spouse from the loan liability as well as include a buyout to spouse – that famous Owelty lien.

But, what does that transaction look like from the other side?

I took a call from a great attorney yesterday who was in mediation. His client was giving her interest in the home to the spouse subject to an Owelty buyout. He had the best question: How can I be assured that my client will get paid and get off the mortgage note?

Note why this is a great question. Any lawyer can ask “how do we write up a buyout in the decree and how to we require the refinance?”

Those are great and important questions. And I deal with the answers to those questions 24/7, or so it seems. You can find a lot of material on this blog about those questions. I love dealing with those issues.

But, that simply addresses the issue of what words go on white paper.

The most important question is

WILL ANYONE 

TURN THIS WHITE PAPER

INTO GREEN MONEY?

That’s why this lawyer’s question was a great one. What people really need is the right words on white paper but even more so, green money in their bank account. They can’t exchange their divorce decree for groceries.

Well, the right answer to that question - How can I be assured that my client will get paid and get off the mortgage note? – is to view the transaction as a typical real estate sale.

Your client is, after all, selling their interest in a property to a buyer (their spouse). There is a buyer and a seller.

As a mortgage finance guy, when I am helping one of your clients purchase a house, I have to produce a loan approval statement. The “approval letter” is attached to the offer to purchase and given to the listing or selling agent.

Inevitably, I get a call from the seller’s agent asking about the approval statement. The get really nosey and ask all sorts of questions which they [should] know we can’t answer. Questions like:

The only legitimate, relevant question is: Is your buyer approved for the financing?

Then there are the statements calculated to put me on the defensive. “Who are you…I’ve never heard of you before?” It’s not as hard to answer that one any more. But, for a while there, it was off-putting because, fame in the market didn’t translate into performance in mortgage lending…and I knew that.

Why is that? Why is the seller’s agent so persnickety about the buyer’s loan approval? It is because they are getting ready to effectively remove the property from the market – take it “off the market.” Technically, they can entertain other offers so it’s not really “off the market” but as soon as a contract is accepted, the multiple listing service will show that property as “under contract.” This has the effect of taking it out of play. After all, why would a realtor take time to show a property to a new buyer if that property is already “taken?”

The sellers just want to know that the buyers can perform on their contract offer.

Through the years, one of the most innovative marketing strategies for mortgage originators has been to offer sellers to prequalify any of their potential buyers. The attraction for sellers and their agents is that, they get a statement from a source they trust about the loan and likelihood of a successful closing. The mortgage originator benefits because he has a chance to compete for that loan, to get more business.

The entire enterprise is built around assurances of financing.

So, in a mediation or negotiation about the house, why not require an authentic, trustworthy statement of loan approval? If your client is “selling” their interest in the property to the other party, shouldn’t you and they know whether or not their spouse can pull it off?

Simply tell them that you’re fine with the deal but before it’s officially accepted, you need to see a loan approval statement from a verified source. You could even say “we want Noel Cookman to pre-qualify your client – he can make sure it’s a doable deal.” See 3 paragraphs up. ?

You have every right to require (demand may be a bit strong) a loan approval statement that is comprehensible, verifiable and dogmatic. If you have connected me to your client before mediation, I provide you/them with a loan approval statement. Turn the tables - require it from the "buyers."

You’re the seller. Don’t just “take the house off the market” so to speak without having good reason to trust that your client will get paid and/or be removed from the mortgage liability as hoped.

Noel Cookman
Noel@TheMortgageInstitute.com

I’ve had a rash of cases lately with the same elements.

One party did not want the other party to have the house – they “put their foot down” and said “no way” - so the court or mediator said “sell it.” The mediator or judge or attorney also agreed that one party could, then, purchase the property from the other party once the property was listed for sale.

Sorry. It can’t be done – at least it cannot be done according to the technical parameters of the MSA or order. And, you know how the court can be about technicalities.

First of all and normally, if two people own a house, one cannot tell the other that they will or will not sell. Both of them own the property and they both have to agree on the terms of sale. Both signatures are required at a traditional closing – the warranty deed to the new owners among a few other documents must be signed by all owners.

Of course, that’s where court-appointed receivers come in. Agreement of parties is no longer required. In other words, the court has to violate normal terms of free commerce in order to get the property sold. It allows its appointee to sign legally binding contracts and closing documents for the sale.

But, what if one of the parties wants the house, can afford it and can refinance the mortgage (so as to remove the other party from its liability) and can produce money for a buyout of their spouse’s interest in the property?

The philosophical question is “how can the court logically prevent a qualified party from continuing to own a property for which they can provide adequate financing and maintenance?”

In other words, by what reasonable principle does the court snatch a property away from a qualified party-owner and, effectively, place it with any member of society other than one of the two parties in a divorce?

I understand the conundrum and will provide a simple answer – both logically philosophical and practically technical – herein. Just keep reading.

For now, I just want you to ponder the inequity of the case wherein one party can qualify to “keep the house” but the other party says “no.” By what law of property rights or contracts or sanctions against “legal plunder” (about which Bastiat opined) does a court refuse the qualified party?

The courts and mediators of late have been resolving this conundrum by ruling that the property be listed for sale and that either of the parties can make an offer to purchase it from the other.

Before I provide a simple solution, consider these two important factors:

  1. A person may not purchase a property which they already own. They may refinance it. They may purchase a co-parcener’s interest in the property. But, it is not possible for them to purchase the property – they already own it.
  2. Moreover, per lending guidelines, if a person (the homeowner) applies for a mortgage loan while the subject property is listed for sale, the loan is not eligible for delivery to the agencies. That is to say, the loan application is DOA and auto-terminated. This includes the listing of a property for sale while a refinance application is being considered (processed, underwritten, cleared for close, etc.). Without committing fraud, there is no standard way to get a mortgage loan, using a purchase contract on a property wherein the borrower is the owner.

Before anyone complains about this mortgage lending guideline, one should consider what it’s like to be a lender. Contrary to bad myth, lenders are not trying to “take your house” through foreclosure.” There’s no “money in it,” it’s bad PR, and it’s more trouble than it’s worth. Lenders are structured to make money over time by collecting interest on loans they have made. They also sell loans to other investors but the value of owning a mortgage is the ability to collect payments over time – and that’s what they are selling to those investors.

Most people do not know that, for any loan we make which pays off (for example, by the homeowner selling their house or refinancing the debt with still another lender) before 6 payments are made, that investor will come back to us and reclaim all monies they paid for that loan. Boom – just like that, our profits and commissions (we call it our groceries and house payments) are gone. Why? Because, before they have had a chance to recoup their expenses and profits on the loan that was made, the lender finds itself back to “square one” with no more income (for profits) on that loan.

Put yourself in the lender’s shoes. You can’t afford to make loans if your income is turned off. Hence, they have contracts with most all originators which allows payments to be made for the originator (loan officer, branch mortgage office, lender) but which must be repaid if the loan turns out to shut off the lender-investor from receiving income (in the form of monthly mortgage payments) from the homeowner.

So, why the rule – that a lender will terminate a loan application if the house is listed for sale? Because the homeowner is signaling that they are going to sell that property and pay the mortgage off, cutting the lender off from its only source of income.

Again, lenders make money on mortgages by collecting payments over time. Listing a property for sale is the biggest signal a potential borrower can send that they will not be making those over-time payments.

These recent cases have twisted a transaction up “six ways to Sunday.” The standard ruling or agreement is that the property will be listed with a realtor or a receiver and either of the two parties can “buy” it from the other.

As I have labored the point – it simply cannot be done.

So, I’ve come up with another process – sort of a hybrid between purchasing and refinancing. It’s really not a purchase contract but it uses terms and phraseology that people might understand. Here is an “offer” I drafted and sent to a receiver last week. Sadly, the receiver had no idea that properties cannot be purchased by their owners or that mortgage loans could not be approved if a homeowner applied for a loan on a property which was listed for sale.

Nevertheless, I struggled through an explanation and sent a transaction-specific version of the following:

α α α α α α α α α α α α

OFFER TO PURCHASE SPOUSE’S OR CO-PARCENER’S INTEREST
Common Address
Herein referred to as “subject property”

This is an offer from _______________ (buyer) to _________________ (seller) to purchaser seller’s interest in the above-named subject property.

We understand that the subject property has been placed with you as the realtor or receiver and that you intend to list it for sale and accept the highest bid. On the surface, it may appear to the court and its agents that such a transaction is reasonable and possible.

Please note two important facts – in the event of either party’s attempt to “purchase” the property - which may derail the best intentions of the court, the attorneys and the parties.

  1. A person may not purchase a property which they already own. They may refinance it. They may do what the title of this document and its first paragraph indicate – purchase a co-parcener’s interest in the property. But, it is not possible for them to purchase the property – they already own it.
  2. Moreover, per lending guidelines, if a person (the homeowner) applies for a mortgage loan while the subject property is listed for sale, the loan is not eligible for delivery to the agencies. That is to say, the loan application is dead and auto-terminated. This includes the listing of a property for sale while a refinance application is being considered (processed, underwritten, cleared for close, etc.). Without committing fraud, there is no standard way to get a mortgage loan, using a purchase contract on a property wherein the borrower is the owner.

The above cited factors are no problem unless the property is listed for sale. And, no problem unless the parties attempt to sell to or purchase from the other co-owning party.

Here is the solution. To accomplish the intended goal, one or each of the two parties should offer to purchase the other’s interest. This is commonly and colloquially known as a buyout in a divorce. It should be facilitated by an Owelty lien. And, the offer should state “net proceeds” to the seller (of their interest).

Hence, Party #1, offers to purchase party #2’s interest in the subject property for net proceeds amount (payable to him/her) of $100,000.00.

The final and total Owelty lien (buyout) amount shall be determined by lender so long as there is no cost or harm to “seller” (party #2) and so long as the final mortgage loan amount is the sole and separate liability of Party #1.

Party #2’s portion of receiver fees (or other fees) will be taken from the $100,000.00.

Both parties shall timely execute Owelty documents to accommodate the transaction per the instructions of the buyer’s consultant, Noel Cookman (noel@themortgageinstitute.com; 972-724-2881) or his agents.

Loan Approval Statement. The court and its officers (receiver, attorneys) and the parties (including their agents) should know that Party #1’s loan has been processed, underwritten and approved, conditioned upon the buyout being structured per relevant instructions and agreement of parties.

We can close the transaction within _____ days of final acceptance. The events that would affect the timing are: a) appraisal – usually takes about one week to obtain; b) final updating and review of loan by underwriter usually takes less than a week; (tasks a and b run concurrent); c) clerical work and compliance put a few days of extra “space” in the transaction. Upon acceptance of this offer, I can advise the “buyer” and “seller” and the agents to the transaction – including you, of course – of expected closing and funding dates.

This offer is null and void if subject property is listed for sale as of the date of this offer or if, at any time from the date of this offer until the transaction is closed and funded, the property is listed or offered for sale.

Thank you,

Noel Cookman
noel@themortgageinstitute.com
972-724-2881

Ω Ω Ω Ω Ω Ω Ω  Ω Ω Ω Ω Ω Ω Ω Ω Ω Ω

I’m working on a self-promulgated form that will cover all the necessary elements in such a “purchase.” More later.

Thanks for reading.

Noel Cookman

From: Very Good Central Texas Lawyer
Sent: Wednesday, May 8, 2019 8:31:55 AM
To: noel@themortgageinstitute.com
Subject: Question

Good morning Noel,

If wife was awarded the house in the decree and husband signs a special warranty deed to her, can husband buy his own house and get financing even though he is still on the mortgage but gave up his interest in the house. I should know the answer to that but I’m having a brain fart morning.

Hope you’re doing well,

Very Fine Lawyer in Central Texas

 

Noel writes:

Sort of.

1. It's actually the assignment of the mortgage debt to wife that allows that debt to be excluded from his qualifying ratios; [see below]

2. His ownership of another property (or debt for the same) in any case would not - in itself - prohibit his purchase of an additional one; neither does his conveying his interest to his ex-wife affect his qualifying for a new home purchase.

So, there are two issues here. One is the qualifying related to debts which appear on his credit report. The other is title or ownership. Some lenders actually do place limits on the number of properties applicants own before agreeing to lend money on an additional one. But, that number is usually around 10. Still, it's not a legal limitation on property ownership - just a lenders and agency (Fannie, Freddie, HUD) guidelines which affect mortgage financing of said properties.

A, sort of, third issue is also mentioned - let me rephrase it. Does the signing of a Special Warranty Deed to ex-wife, relieve the former owner of the existing mortgage debt in the practical exercise of qualifying for a new loan? The answer to that is a clear "no." The Special Warranty Deed does nothing to relieve debt. It deals only with the conveyancing of (a person's) interest in the subject property. One might sign away his interest in a property a thousand times; he will still be obligated on any promissory note he signed to a lender which advanced funds for the purchase of that property. The lender retains another Deed - the one that says, "you pay, you stay."

3. He obviously needs to use me since not all lenders play by this rule.  Plus, I'm just a wonderful person. Ha.

*The "Below" Part: Excludable debt in mortgage qualifying seems mysterious and enigmatic. It need not be. There are a couple of guidelines which allow a debt to be excluded in a new mortgage application. The first - and most useful in our world of family law - is that a debt can be excluded in a borrower's qualifying ratios if that debt has been assigned to another party in a divorce decree or some other "legal document" like an MSA (Mediated Settlement Agreement) or a Rule 11 Agreement. So, nearly ALWAYS, any divorce decree should assign the mortgage debt specifically to the party which is awarded the house and/or generically with that phrase that assigns debts associated with "any property awarded herein..."

Here's another example of an excludable debt. Let's say you have "co-signed" for your daughter to buy a car. You tell her "You're going to get a job and pay the payments AND the insurance differential if I co-sign for this debt. [Call it a DEBT so that they can hear it loud and clear.]" Don't let your daughter pay you in cash. This is the biggest mistake I see in debts which should otherwise be excludable - cash payments. Make your daughter open a checking account and require her to write a REAL check to the auto creditor EVERY freakin' month. Not just EVERY month - EVERY FREAKIN' month. What I meant to say was "EVERY MONTH...WITHOUT FAIL." Even if you help out one month, you should give her the cash, let her deposit it into her account and STILL write the check from HER account. Then, you require her to provide you with a copy of the cancelled check or payment transaction each and every month.

If you provide that documentation to me (as your mortgage lender), I will exclude that debt from your qualifying ratios. You will have documented that another party is indeed paying that debt and you are not having to pay it. I will need to document payments for either the past 12 months or, if less than 12 months, since the inception of the account (probably for at least 4-6 months).

 

Very Fine Central Texas Lawyer writes back:

Well their divorce was done a few years ago and they never did anything other than award her the house in the decree. They're sending me the decree. I see a lot of sloppy handling of houses in decrees in this county....

Very Fine Central Texas Lawyer

 

Noel wrote:

No longer. They now have you….and me. ? Why in the world would they not assign debt commensurate with awarding of associated property. SMH!

Noel Cookman
The Mortgage Institute
972-724-2881
Noel@TheMortgageInstitute.com

A customer was on the way to court while I was reviewing several orders and requests and motions. I found that the following had been stated as factual and consequential in establishing value and equity in a marital residence which was to be awarded to my customer subject to her refinancing its debt into her own liability and producing a buyout (financed) as well. (Numbers rounded for simplicity).

First Amended Inventory and Appraisement of Opposing

Petitioner submits this inventory and appraisement of all assets and liabilities, community and separate estates, as follows:

Community Estate of the Parties
Real Property
Street address: [redacted]
County of location: [redacted]
Legal description: [redacted]

Current fair market value (as of date):             $450,000.00
Current balance of mortgage (as of date):     $  50,000.00
Other liens against property:                             $            0.00
Current net equity in property:                          $400,000.00

Source(s) of value: Real Estate Comp and Zillow

Before you read my letter to the divorcing customer, can you see the two major issues with the above paragraph?

Dear Divorcing Customer:

This is SUPER SUPER SUPER important. Three super important issues:

The Buyout

Please do not let the court (in transcripts, written orders, agreements, whatever) memorialize the actual Owelty lien (or total buyout in states other than Texas). In fact, do your best to prevent the stating of the buyout to your husband as an Owelty. Let me (in consultation with you) determine that Owelty amount (or total buyout in states other than Texas).

Here is the proper way for the court to rule (or parties to agree) so that your financing can be accommodated:

Net buyout to husband shall be $______, final OWELTY (or total buyout in states other than Texas) amount to be determined by lender (Noel Cookman).”

The divorce decree will cite the actual, final and total OWELTY amount (or total buyout in states other than Texas). And, I will review for underwriting before it is finalized.

For example – AND THIS IS SUPREMELY IMPORTANT – if the net buyout amount to your husband is $50,000 and you have cash needs (for debts, legal fees, personal cash, etc.) of another $50,000, the court transcript (and this would apply to a Mediated Settlement Agreement or any PRE-Decree orders or agreements) should state what I said above – that the “Net buyout to husband shall be $______, final OWELTY (or total buyout in states other than Texas) amount to be determined by lender (Noel Cookman).”

But, the Divorce Decree would state: Husband’s Owelty (or total buyout in states other than Texas) is $100,000 TO BE DISBURSED AS:

Husband                                   $50,000
Visa                                          $10,000
MasterCard                               $10,000
Attorney Trust Account        $30,000 (to pay legal fees and/or pass through to you)

The actual language will be a little more appropriate for decree language (in Texas it would be “The Court finds it necessary to impose an Owelty of Partition on the entirety of the property….blah, blah, blah.”) BUT the unique language will insert that phrase “TO BE DISBURSED AS.”

It is crucial that certain language be used or left out of each document. If the court sets the Owelty (or total buyout in states other than Texas) (in the above example) at $50,000, it will be difficult, more expensive and maybe even impossible for you to access the additional $50,000. There is no downside to any party, any person, any entity by doing it this way. No taxation will be triggered for your husband (but, I would want him to ask his tax preparer for a professional opinion on that as I am not a tax pro – I have simply checked it out with my tax professional).

In other words, leave out mention of Owelty in all documents except the final decree.

Call me from court or wherever if you want – it’s THAT crucial!

I realize that you are dealing with all sorts of issues in the trial. This one may seem small by comparison. But, in the above example, it’s only $50,000 small. ?

Remember: Neither the judge nor any officer of the court will be lending their money and assuring that the loan will close and that your ex-husband will be paid. NONE. I do. I can turn their white paper into green money. But, they have to put on the white paper what I advise. If they do, everyone gets paid.

Calculating Value

The documents state that the parties are relying on “Real Estate Comp and Zillow” to determine value.

The court needs to know that neither a realtor (through a “real estate comp” or a CMA – Comparative Market Analysis) nor Zillow can provide a reliable or professional or accurate statement of “opinion of value.” At best these are rough markers or starting points. But, they are not statements of value.

I cannot state this strongly enough: The only value that a lender accepts is that value which is reported by an appraiser on an appraisal which the lender alone has ordered through a very legally prescribed (Dodd-Frank Act and its precursor the HVCC - Home Value Code of Conduct) process. A judge cannot state value. A court and countless other appraisers cannot provide a reliable, underwrite-able statement of value.

This is only important if a person or an entity is advancing mortgage funds in the transaction. If neither side care about financing and will never need it, for all I care, they can yank a kid from off the street to given them a report of value. They can do what they want in that regard.

To restate this: If financing is required, ONLY ONE APPRAISAL COUNTS – the one which the lender orders and reviews and accepts.

Equity in Property

The documents state that the following calculation for “net equity” in the property:

Current fair market value (as of date):             $450,000.00
Current balance of mortgage (as of date):     $  50,000.00
Other liens against property:                             $            0.00
Current net equity in property:                          $400,000.00

I assure you that the other side would love this calculation but would be unwilling to buy you out at these numbers. This is not a calculation of “net equity.” At best, it is a calculation of “gross equity,” and maybe not even that.

Here’s why: the cost of the transaction ALWAYS diminishes net proceeds (or what might be meant by “equity”).

At the very least, here is a calculation of “net equity.”

Current fair market value (as of date):            $450,000.00
Current balance of mortgage (as of date):     $  50,000.00
*Transactional Costs of Sale:                          $ 30,553.00
Current net equity in property:                          $369,447.00

*Transactional Costs
Realtor (6%)                              $27,000.00
Title Policy                                 $  2,803.00
Typical Seller costs                  $     750.00
Not even counting seller-paid closing costs as incentives or tax prorations.
The only way for the initial calculation of “net equity” to produce “net proceeds” (a check deposited into the sellers’ account) is if someone showed up on your door-step with a suitcase of green money ($450,000 to be exact) and said “sign the deed over to me and I am trusting you to pay off the mortgage note.” That’s really an illegal transaction at worst and an uninsurable one at best. Moreover, I think you would probably smell something fishy and refuse the deal. It just doesn’t happen.

END OF LETTER

One more word about courts and judges

No judge can determine value. If you are searching for some fact to embolden you when challenging a court’s judgment in setting value – such as taking two varying appraisals and “splitting it down the middle” – understand this…

Only the person or entity who is advancing funds on a property can determine value. Only if/when the judge is purchasing a property with his/her own cash OR lending his/her own money (under federal and state laws governing real estate lending) would they have the rational and reasonable right to determine value. Otherwise, they have no standing whatsoever to set value.

I suppose the smart-ass way of saying this in court would be to tell the judge who insists on setting value “GREAT, so YOU’RE lending YOUR money on this deal. Awesome.”

Since you wouldn’t do that – you being the more prudent between the two of us – I suggest that we all work to get these facts circulated to every judge in the country who hears divorce cases or cases that otherwise deal with the value of a property.

Thank you.

THREE TIPS FOR MEDIATION

Know this and you're in the top 1%

No one else - other than my readers and subscribers - know to do these three things. Yet, if you employ these three simple tips, you will be in the TOP 1% of attorneys and mediators - really, the top fraction of a percent. It will not always be this way because word is getting out - slowly, steadily, but surely. Be a leader and show your colleagues the way.

These tips will set you apart as a family law specialist. When you pull these cards from your hand, it will have the value of near shock to opposing...and, in a good way. They will not expect this. They have NEVER seen it, unless per chance, they have been on the other side of a customer with whom I have been working.

1. The Value of an Assessment/Approval Statement from me.
This one can save hours of "can she afford the house on her own?" "can she/he qualify for a loan without a job?" "We think his credit might not be that good" and my favorite - the all time dumbest reason to not require refinancing of a jointly held debt on an awarded asset - "we'll give you a Deed of Trust to Secure Assumption" as if that will relieve debt. (PS: it's actually the awarding of a "contingent" debt...but let's not get side-tracked).
The point is, a letter from me that says "we can do the financing under these conditions" can turn two hours of wasted, meaningless, un-knowledgeable discussion into 5 minutes. There is no guessing. There is no need for merely hoping. No confusion. Nothing but, "my client can qualify for their own financing and they can consummate the deal by X date."
Now, I need a little time to produce this. Briefly, I can do a pretty good letter in a few hours. But, if we have a couple of weeks, my letter can say "THIS IS NOT JUST A PRE-APPROVAL - this client's loan has been UNDERWRITTEN and APPROVED. All we need is agreement and the judge's signature....sign here." I'm telling you - it's amazing!
2. When negotiating a buyout (of any amount for whatever consideration and you are tempted to affix (memorialize in an IRREVOCABLE agreement...which some lawyers erroneously think is unchangeable or un-modifiable in its language) use this phrase:

"Net buyout to spouse is $ XX,XXX.XX; FINAL OWELTY LIEN TO BE DETERMINED BY LENDER IN CONSULTATION WITH THE BORROWER."

Even better is...

"Net buyout to spouse is $ XX,XXX.XX, FINAL OWELTY LIEN TO BE DETERMINED BY NOEL COOKMAN (LENDER) IN CONSULTATION WITH THE BORROWER."

Here's why this is critical.
If the decree cites the net buyout to spouse as the Owelty interest, than any other dollars financed in the customer's loan will be considered "cash out" with severe limitations on financing. If all cash needs are cited as part of the Owelty interest, then none of those other dollars will trigger the onerous Texas Home Equity Cash Out provisions.
But, sitting in mediation, you don't know what that total amount is.
Since, the financing of an Owelty (in the context of a refinance of the mortgage) cannot transpire until after divorce, the MSA is not underwritten, only the decree is. So, if net buyout to spouse is $50,000 and another $25,000 is needed, you can cite the Owelty in the final decree as $75,000 "TO BE DISBURSED AS" 1. $50,000 to ex-spouse, 2. $15,000 to credit cards and 3. $10,000 to your trust account to make sure all remaining legal fees are paid...or some configuration of that.
Don't try this at home...this is a job for the professionals. Which is to say, make sure I am reviewing the settlement and performing the loan financing. Hook me up with your client or with opposing. We don't have to hurt one side in order to help the other. In fact, we help one side BY helping the other.
3. When the other side is demanding your client refinance the debt on the house (in order to remove their client from its liability - mostly a reasonable requirement) here is the most common hot-button issue and how to address it. Their client thinks - as does what seems to be the entire literate world - that so long as the current mortgage appears on their credit report, they will not be able to qualify for an additional mortgage, their all-important debt/income ratios being too high.
Well, they are half-right. Debt ratios are supremely important, nearly a matter of law. Silly law (Dodd-Frank) but law, nonetheless.
Here is how to address it - quietly, calmly but with great force.
Just say this:
Your client's mortgage and other housing liabilities are EXCLUDED from their debt ratios by simply the standard assignment of that debt to my client in the divorce decree or Rule 11 Agreement (Rule 11 in the instance when a party wishes to purchase a home before final divorce). IT'S AN EXCLUDABLE DEBT FOR MORTGAGE QUALIFYING.
Yep. It's that simple and YUGE! But, hardly anyone in the mortgage world knows this and - it is hardly an exaggeration to say that NO ONE IN THE FAMILY LAW WORLD knows this. Well, now there's YOU.
More to follow. If you join my Platinum Club Inner Circle, I will give you a citation of the precise guidelines from Fannie Mae, Freddie Mac, HUD (FHA) and VA. It's a cheat sheet that will blow your mind...and blow your competition off the map.
Thanks for reading.
Noel Cookman
America’s Premier Divorce-Lending Specialist
office 972-724-2881 † fax 866-295-0567

Continuing Series: Things My Platinum Inner Circle Attorneys Would NEVER Do

This really happened. I leave the dates on the email exchanges but have, obviously, removed the real names of the people involved...to protect the innocent and the guilty.

Opposing for a case/file on which we had already obtained credit underwriting approval (i.e., loan was approved subject to appraisal and final divorce) refused to allow our customer to let an appraiser in the house for it to be appraised.

Get this: opposing wanted money, they wanted money from the refinance of the house but opposing (attorney and client) would not allow the house to be appraised. Wife (we were getting the loan for husband) had refused to allow access up to that point.

Attorney actually memorialized this silly refusal in an email...the first exchange below...keep reading.

Spoiler Alert. Scroll to the bottom to see how it turned out.

 

The chain of email communication:

From: Opposing Attorney
Sent: Thursday, January 3, 2019 1:39 PM
To: My Customer’s Attorney
Subject: Customer

I talked to my client about the appraisal and settlement.  She will sell all community assets to husband and forgive all debts he owes her for the sum of $250,000. She will not allow an appraisal [emphasis mine]. Call me at 214-555-DUMB if you want to discuss.

Opposing Attorney, Esq.

 

Husband (my customer) responded – rather appropriately I think - to this nonsense:

From: Husband/Customer
Sent: Thursday, January 3, 2019 3:31 PM
To: Customer’s Attorney
Cc: noel@themortgageinstitute.com
Subject: Husband/Customer

So, let me get this straight, I am supposed to get a loan to give to Wife $250K, but the bank can’t [is disallowed by opposing to] do appraisal?

Is this what they teach in Law school these days? Sounds like wasted money if that is what they are teaching.

Husband/Customer Name

 

From me (Noel, bent over double laughing):

Dear Husband/Customer (with Attorney):

Your sentiments are spot on. And, I totally agree.

For what it’s worth, I do my best to be supportive of the legal profession – I am supremely complimentary of lawyers every chance I get, as I have been about your attorney who deserves kudos and high praise. But Mr. Opposing Attorney’s statement doesn’t pass any test. It betrays not only an ignorance of financing but a deficiency of logic. I’ll let legal professionals weigh in on what sort of legal test his statement may or may not pass. My guess is that there is hardly any sound legal argument for his position.

Put simply, Mr. Opposing Attorney needs to be in possession of a few facts:

  1. Home financing - which is exactly how $250,000 (or whatever the agreed amount is) will be produced (neither Mr. Opposing Attorney nor Wife get to choose how Husband pays the obligation so long as such payment derives from legal sources) – requires all sorts of conditions for loan approval; not the least of which is an appraisal for the collateral. An appraisal WILL be performed if Wife receives her money.
  2. If Mr. Opposing Attorney wishes to lend Husband/Customer the $250,000, he may do so at any terms which are acceptable to borrower (Husband) and lender (Opposing Attorney) and legal. If he does not wish to lend his own money, he must observe the Golden Rule – He who has the gold makes the rules. This is to say that Mr. Opposing Attorney may think that legal rules, tricks and protocol apply here and NOT financing rules. That would only be true if he is producing money. But we all know that he is not. He should forget his trickery and ask himself “how shall we get money for my client?”
  3. No judge or court can change these rules. Of course, no judge or court will lend its own money so as to circumvent the normal protocols of mortgage lending.

I’m not a lawyer; and, your Attorney can certainly predict the court’s behavior with greater accuracy than can I or any layman. But I think I can argue against Mr. Opposing Attorney’s position after imbibing 8 margaritas and a handful of pain killers. His position and that of his client’s is laughable. If he wants to argue before a court that Husband cannot have his lender perform an appraisal, Mr. Opposing Attorney will have to state that:

  1. Husband was approved for financing – not just pre-approved but underwritten and approved subject ONLY to an appraisal of the property and final divorce specifying terms properly (Owelty lien as I have prescribed).
  2. Noel Cookman, America’s Premier Divorce-Lending Authority, has stated such. If I say so myself, when I say I can deliver the money, I can deliver the money. Ask 200+ Texas divorce lawyers.
  3. His client demands payment but refuses the means of payment. Specifically, she refuses to allow the collateral (which is securing the loan husband must take in order to pay the settlement) to be appraised for its value. As I say it again, I am shaking my head, rolling my eyes and uttering disgusted-sounding chuckles. This guy is idiotic, apologies to idiots everywhere.

*From my experience and perspective, a small percentage of judges can be as ignorant, obtuse and obstinate about financing as anyone. (Who am I to talk, eh. I'm no stranger to ignorance). Generally, they are cooperative with rules of financing, once they understand them. But I would NEVER assume that they understand these matters without clear explanations. Still, the point on which all of this turns is if the objecting lawyer (or a judge who might side with him) will lend Husband the money at good terms. If not, they should rule according to what Husband’s Attorney submits and how I have designed the Owelty (buyout). Remember the Golden Rule.

Thank you. (Please forgive the sarcasm but this attorney’s behavior begs for it).

Noel Cookman
America’s Premier Divorce-Lending Specialist
office 972-724-2881 † mobile 817-454-4555 † fax 866-295-0567
www.TheMortgageInstitute.com
601 W. NW Highway † Suite 200 † Grapevine, TX 76051

RESOLUTION? The day after my email was sent, the house was appraised. Our loan - which will put a lot of money into wife's bank account - is ready to close. 

Mr. Cookman,

I have been following your emails and blog for some time, being a family law specialist in Texas; I have moved to Tennessee and been teaching domestic relations in a little law school up here for a while, and my question is pretty simple.

Will Owelty liens and your divorce lending services work here in Tennessee? They have never heard of an Owelty lien, and I am curious what the interstate application of these services might be.

Thank you for your time, and Merry Christmas.

Still Licensed to Practice in Texas, Teaching in Tennessee

♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦

Dear Friend,

So great to hear from you. I remember you well. I remember when you moved. I remember being happy for your opportunity in Tennessee and a bit disappointed that Texas was losing you. Glad you’re doing well. And, thanks for reading.

It’s interesting you should ask this. I am writing courses and materials for other states right now. And, here are the two main points of my initial synopsis/thesis:

  1. Texas is the only state that provides a lien on property for a divorce buyout (of a marital residence). So far as I have learned so far, the Owelty is only a legal provision in Texas. Although, it’s a general concept – a word with a definition – so, per state laws, I would imagine there might be some latitude in what liens are called. (See below).
  1. The key to get the proper financing in all the other states is to get the buyout to look like and function as a lien on property (Texas being the template) rather than a mere judgment against a person.

To the second part of your question –

Will…your divorce lending services work here in Tennessee? – The answer is a straightforward – YES.

I consult on those loans/cases but my “multi-state desk” handles the actual loan. My mortgage bank handles loans in all but a few states; I am personally licensed in Texas and California and my branch is licensed in those two states as well as New Mexico, Oklahoma and Arkansas. So, we can pretty much handle the business anywhere.

As to the Owelty question, let me just add that it’s amazing how mortgage financiers are missing this in Texas (a little less now that more mortgage folks have learned about the Owelty) and in all the other states. The mistake they are making is that they are “cashing out” rather than “buying out” – and there is a HUGE difference between the two.

So, until I get all the states studied out thoroughly, I recommend that divorce settlements (decrees, property settlements, etc.) specify the buyout and cite an actual lien – probably in the style or class of a vendor’s lien (might be called by various names – just avoid the word “equity” at all costs since equity financing is what triggers onerous limitations not only in Texas where it is law but in all the other states wherein limitations are per industry standards).

In point of fact, the Owelty lien (in Texas) is of the same lien type as a vendor’s lien. Vendor means “seller.” So, in every sense, the divorce buyout, being the selling of one’s interest in a property, is of vendor quality and kind. Hopefully, some simple research will indicate which liens are valid per state law and which are suspect.

I hope this helps. I’m so happy that we are still connected.

Noel Cookman
America’s Premier Divorce-Lending Specialist
office 972-724-2881 † fax 866-295-0567
www.TheMortgageInstitute.com
 Noel Cookman 01

Got this email the day after Christmas:

Good morning Noel and Andy,

I hope y’all had a wonderful Christmas.

My question this morning:

How do I get my name off the current mortgage when my husband is buying me out and he does not want to refinance?

Is there another way to remove it from my credit report besides him refinancing? His attorney is telling him it will be taken care of. I know I can get removed from the title of the property through court documents but that does not remove my name off the credit report.

Please advise.

Ashley [not real name]

---------------------------------------

Hi Ashley,

This is very important. Thanks for writing about this.

His attorney might be referring to your “coming off” title or the deed for the house. But, you are 100% correct - no attorney or court can pronounce that a party will be relieved of a debt – except a bankruptcy court…and, that’s a whole different issue. So, this may be bad advice or there may be something “lost in translation.” In any case, the only thing that relieves you of the debt obligation is your [ex]-husband RE-financing the debt in his own liability.

The short answer to your question is: Require it in the divorce settlement. That is, two things should be taken care of in the agreed settlement regarding the house. #2 is the buyout to you. #1 is the requirement that he refinance the debt out of your liability and into his own. #1 should be taken care of irrespective of a buyout; although, a buyout is often part of the refinancing action.

Now, attorneys often argue that a court cannot require a lender to advance funds; thus, a court cannot REQUIRE a party to refinance a debt and the attorney argues that requiring a refinance just cannot be done. This is when you see provisions in a divorce like “[Party] will make best efforts to refinance at least once per year until he/she has done so…” This is nearly laughable were it not so sad and had such arrangements not produced such catastrophes (like ruined credit, loss of value in homes, loss of home ownership, etc.). Any borrower can obtain a denial letter from any “friendly” mortgage professional. Sometimes, these denials are legitimate. Sometimes they are not. But, why would a court believe that it was in the interest of either party and the community NOT to know – IN ADVANCE – if such financing could, in fact, take place? This has been my crusade and battle cry for 16+ years now. And, there is NO reason for anyone to NOT KNOW exactly what financing is approved and ready to close...no reason, that is, if they call me.

Moreover, this is sloppy, “legal” reasoning. The court – in a divorce action – can absolutely, effectively require the refinancing. Here is how it’s done.

1. The decree states that husband will refinance the debt – BY A CERTAIN DATE OR TIME FRAME (e.g. “…within 60 days after entry of final decree.”)

2. The decree states that “…if the refinancing has not occurred by this date, the house will be…” at this point there are options. One option which you probably do not want would be that the awarding of the property reverts to you. What is most likely in your case is that the property would be listed for sale with a licensed real estate agent.

3. If the parties (you and your husband) cannot agree on terms of a sale (agent, price, terms of contract, etc.) then the court will appoint a receiver to manage the sale of the house. This is a serious step and invites lower offers – because the agent/receiver in that case does NOT work in the interests of the seller but in the interests of the court which is, simply, to get the house “off the books.” The receiver TOTALLY controls the property at that point – the “sellers” do not even have to show up for a closing as the receiver is authorized by the court to sign everything. It’s serious business.

a. For this reason, parties might skip step #2 and go right to #3.
b. Obviously, agreement of parties on reasonable terms of sale can forestall future difficulties and problems.
c. Husband would be “under the gun” so to speak to get the refinancing done.

If he would call me, I would walk him through it, do the financing for him and work in his best interests AS CONCERNS HIS LOAN. I have never hard to harm one side in order to help the other. In fact – think of your case – if I help him get favorable financing, it actually works in your interest as well as his.

But, I would NEVER allow the debt to just “hang out there.” It’s an invitation to disaster. And, it’s met with the eye-rolling statement – “What could POSSIBLY go wrong with THAT scenario!?!?!”

Make sense?

Noel Cookman
America’s Premier Divorce-Lending Specialist
office 972-724-2881 † mobile 817-454-4555 † fax 866-295-0567
www.TheMortgageInstitute.com
601 W. NW Highway † Suite 200 † Grapevine, TX 76051

The Case of the Missing Owelty Language
Circa Fall 2018

Marriage of 20+ years is ending. Marital Residence worth $500,000 is free and clear of mortgages and is to be awarded to husband subject to a buyout to wife of her interest in the property.

The knowledgeable and studious Traci Hutton represented wife and wrote Owelty language in the decree; drafting, as well, the Special Warranty Deed with Encumbrance for Owelty of Partition. As it turns out, she is not only knowledgeable but had attended my seminar on Owelty Agreements and Liens and their proper use. So, she knew full well exactly what to do and what would be needed.

Husband’s attorney however did not like the Owelty language and its provision. So, they fought back and insisted that the language be taken out and that no conveyancing subject to Owelty be recorded.

[Incidentally, I hear that a lot – “I don’t like…” as if one’s likes or dislikes matter. The lesson here is that property interest as specified in a divorce decree is unconcerned with the likes and dislikes of attorneys, judges and courts. Moreover, when someone wants money - that is, when a homeowner needs to finance a buyout to a former spouse, it is the lender and its title agency that determines whether decree language is sufficient. It is those with the money who decide what they like. It’s also known as the Golden Rule – he who has the gold, makes the rules.]

You know how it is – in order to pacify an opposing client and their obtuse, obstinate attorney, one often accTraci Huttonedes to a demand so long as there is no harm to one’s client. After all, the buyout was required in the decree. It was just the mechanism (the Owelty) about which there was disagreement. So, the divorce was finalized without appropriate Owelty language. Traci warned opposing but all she could do was hope that by some miracle, husband could perform.

He couldn’t.

So, the husband proceeds to get his financing only to find out that he can’t get the deal done – the Owelty language is not in the decree and the Special Warranty Deed did not properly encumber the property with an Owelty of Partition. So, both parties re-hire their lawyers, go back to court, motion for new trial is filed, the lawyers spend hours on the phone and in conference with the lender and the title company trying to “get it right” – all to reconfigure the decree to make it conform to what Traci had advised in the first place.

Here’s the real tragedy – husband’s attorney has known about me for over a decade now. Only God knows how many of their clients have either lost the house, couldn’t qualify to refinance the house, missed out on one of my money-savings solutions (and I REALLY do have strategies like that) or just languished in dead-loan zone – not to mention the other side who no doubt has done without in many situations…all because their attorney steadfastly refuses to offer their clients real financing solutions. It’s right under their noses. I have attorneys from Houston and San Antonio and Austin and now, California, who refer their divorcing clients to me. And I get financing for divorcing clients all over Texas and other states may times solving problems no other lender knows how to solve – yet, my mortgage bank office is under the shadow of husband’s attorney’s office and not a peep.

Here’s what should have happened. Yes, sometimes, we need to determine what should have happened so as to avoid problems in the future.

The most important thing is that husband should have been working with me. I’ve got plenty of money (that is, access to plenty of money) and I know how to get people through the intersection of divorce and mortgage financing.

Here’s a good time to correct a common misconception. Many lawyers will be neck deep in negotiations, they will hit a snag about the house and its financing (buyout, qualifying to get the ex-spouse off the mortgage, etc.) and it will hit them – “Let’s call Noel, he can solve these problems.” In other words, they wait until there is a problem to think of me. I’m the fixer, the problem-solver. True enough. But, here’s what you need to know:

If there is a divorce, THERE IS A PROBLEM!

So start off by calling me.

If husband had called me, his loan would have been approved (fully underwritten, including the appraisal and full credit underwriting AND THE TITLE WORK with clear instructions to the attorneys on exactly how the decree needs to read and what deeds must be prepared) BEFORE FINAL DIVORCE.

It would have been done right the first time. No going back to court. No modifying the decree. No motion for new trial. No hours on the phone with the lender and the title agents. NO UNHAPPY CLIENTS paying more fees for re-doing what should not have to be re-done.

Divorce Lending Done Right. We guarantee it.

Kudos to Traci Hutton for getting it right. Incidentally, you should direct your loan closing to Traci’s title company if you can. She knows her stuff.

There’s more. Even if/when the decree has not been properly structured, there is still a strategy that I use to avoid motion for new trial, modification, extra work and problems for the attorneys. It requires simple agreement between the parties which, in this case, would have been a foregone conclusion inasmuch as they were simply trying to do what they had agreed to do anyway. Remember, it was the mechanism (the Owelty agreement and lien) which was not present, not a disagreement about the settlement which presented.

Here is what we would most likely have done. We would have drafted a Deed of Trust to Secure Owelty of Partition which husband would have signed; a Special Warranty Deed with Encumbrance for Owelty of Partition (or a Corrected Special Warranty Deed with Encumbrance for Owelty of Partition if a Special Warranty Deed had already been filed) which wife would have signed and closed the deal. We do this under the principle that agreement of parties trumps almost everything. In many situations, parties can agree – after final divorce – to create an Owelty interest, reduce or increase the amount of that Owelty interest, cancel an Owelty interest. It’s not always simple but, generally speaking, we don’t thrown in the towel just because the decree was not worded properly.

Please don’t mistake – it’s NEVER a good idea to leave such things in a divorce, no less, to the assumption that the parties will agree afterwards. As we often say, “they ARE getting divorce, you know.” So, we all should strive to include these matters in the settlement language (decree language). All I’m saying is that all is not necessarily lost if the decree is insufficient regarding the buyout (Owelty language).

Makes sense? If not or if you need further explanation, join my Platinum Inner Circle (info coming) and email me or text me your question.

Thanks for reading.

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