One of the main concerns when one party is retaining the marital home is that the vacating spouse will not be able to qualify for future mortgage financing while their name remains on the current mortgage. While many investors have their own guidelines or ‘overlays’ to Fannie Mae underwriting guidelines, a divorce mortgage professional will know how to handle Court-Ordered Assignment of Debt.
When a borrower has outstanding debt that was assigned to another party by court order (such as under a divorce decree or separation agreement) and the creditor does not release the borrower from liability, the borrower has a contingent liability. The lender is not required to count this contingent liability as part of the borrower’s recurring monthly debt obligations.
The lender is not required to evaluate the payment history for the assigned debt after the effective date of the assignment. The lender cannot disregard the borrower’s payment history for the debt before its assignment. This applies to all contingent liabilities including mortgages, auto loans, credit cards, etc. (FM Selling Guide B3-6-05)
Again, if you have any questions regarding a client’s contingent liabilities and how it will be considered in qualifying for a future mortgage, please don’t hesitate to contact me directly.
Caution should also be exercised when changing how ownership/title is held. Please let me know if I can provide additional information to you on the various methods for holding ownership/title on real estate and the effects that divorce can play on this topic as well.
Always work with a Certified Divorce Lending Professional (CDLP) when Divorce, Real Estate and Mortgage Financing are present. Click here to find a CDLP in your area.