Certified Divorce Lending Professionals (CDLPs) work with divorce attorneys, real estate agents, financial planners, mediators, and people going through a divorce or legal separation who need help understanding their home equity options (how to divide the marital home). For most divorcing couples, their home is their largest asset. CDLPs help divorcing couples decide their options for splitting the home’s equity with their spouse or refinancing if one spouse wants to stay in the home. Others may want to purchase a home after the divorce to begin the next chapter of their lives. On the latest episode of the Akiona Law Podcast, former tax attorney and CDLP Mihaella Bayla shares how she took time off from running her practice to help launch True Lending Company with her husband. During this process, she discovered difficulties divorcing couples were facing when looking at qualifying for a home refinance or a new home purchase. You can listen to the episode here.
Because of her legal background, CDLP Mihaella noticed an unfortunate pattern. A divorcing spouse could have either kept their home or qualified for a loan to purchase a new home, if minor changes were made in how their final divorce orders were written or in how spousal support and/or child support was awarded. Mihaella was put in the unfortunate position of telling people they did not qualify for loans. This was difficult as she knew how preventable the situation was. This is how she discovered the need to help divorcing or separating couples (and their attorneys) with specific financial planning for mortgage refinancing or lending to allow people to keep their homes once their divorce is finalized, or to qualify for a new home.
The “Staying” vs. the “Departing” Spouse & Different Loan Assumptions
CDLPs like Mihaella live at the intersection of family law, tax law, and financial planning. At these crossroads, they look at loan opportunities available to divorcing individuals. A CDLP can work with attorneys and their clients at the beginning or during the settlement negotiation process (before the divorce is finalized). As part of the divorce team, they think outside the box and find practical financial solutions to put divorcing homeowners in a position where they have options for a home refinance or a home purchase.
When Mihaella meets with her clients, she wants to know their financial goals regarding the home, such as, who is the staying spouse (person staying in the home), and who is the departing spouse (person moving out).
Mihaella also addresses “hot topics” around assumable loans. For example, people want to see if they can assume their current loan. Those who have great interest rates may want to keep that rate. Going from a 3% interest rate to a 5-7% interest rate substantially impacts a person’s budget. When someone wants to refinance their home, Mihaella will discuss and review their options as well as what those options look like considering the division of assets and debts in their divorce.
What about if the person can’t assume the loan—which was at 3%, now, it is at 6%—what happens next? There are two options or two types of assumable loans:
- A legal assumption
- A qualified assumption
A legal assumption is when you have been awarded a home with a mortgage. Think of two people who are married and are both on a loan. When the lender finds out there has been a divorce and the departing spouse has left the residence, it may accelerate the due-on-sale clause. However, laws prevent this from happening to divorcing couples. A staying spouse could keep the house and the mortgage without giving a financial disclosure as long as the staying spouse can keep making the monthly payments. However, the departing spouse is still financially obligated on the loan. In our podcast, Mihaella also explains how departing spouses can protect themselves during a legal assumption.
A qualified assumption is when two people are on a mortgage. However, you can apply and receive qualified assumptions, which equates to the loan being entirely taken from the departing spouse’s name. Though you can keep the original interest rate, the term may reset. This is very hard to do, but it is not impossible. To receive it, it may depend on the type of loan. People who get qualified assumptions usually have government-backed loans, which only make up about 18% of the loans out there. Typically, people have conventional loans, which will not qualify.
Listen to the Akiona Law Podcast
On our podcast, we dive into several different types of ways that divorcing couples run into issues when they try to divide their home. Mihaella explains how to navigate each one and reinforces the need for a CDLP’s involvement in the divorce process. The critical thing to remember is you need to reach out to them before your divorce is finalized. Take back an element of control by telling one what you want to happen and then work backward to see if it is feasible or realistic. Regarding the marital home, you have options available to you, and you need to take advantage of them by meeting with a CDLP early in the process. A CDLP does not charge for a consultation, or for divorce mortgage planning.
If you have further family law questions or are ready to speak with an attorney, contact our office today to schedule your consultation.