Whose Financials Do I Use For Divorced Couples On Short Sales?Posted on January 4, 2014 by
Many of my students repeatedly ask me, “Do I need both the Wife and the ex-Husband’s financial documents when negotiating a short sale?” I let them know that there are several variables that I need in order to give them an answer. In order to have a clear understanding of whose financials I need to collect, I need the following information: Property Appraiser sheet (whose name is listed as owner?), a copy of the last recorded Deed (whose name is on there?), a copy of the Property Settlement and Judgment of Divorce (who was awarded the property and does it contain verbiage stating that a certified copy of the Judgment of Divorce and/or Property Settlement can be recorded in lieu of a Quit Claim Deed).
FOR EXAMPLE: Husband and Wife bought the house together with a Mortgage and Note from Wells Fargo. They then get a divorce and the Wife is awarded the house with no interest from the ex-Husband.
When Sellers get a divorce, typically one party will say they want the house and that person will be solely responsible for the debt on the house. A good attorney will ensure that there is specific verbiage in the Judgment of Divorce and/or Property Settlement which states that the Wife is going to be responsible for the debt on the home and that the ex-Husband will Quit Claim his interest by Deed over to the Wife so that he is no longer on the property. In addition, a good attorney will add verbiage in the Judgment of Divorce and/or Property Settlement which states that should the Husband not sign a Quit Claim Deed to transfer the property over to the Wife, then a certified copy of this Document (Judgment of Divorce and/or Property Settlement) may be filed with the Recorder’s Department in lieu of (instead of) a Quit Claim Deed to transfer the property.
Unfortunately I have found that many attorneys do not completely follow up with the Quit Claim Deed nor do they put the correct verbiage in the Judgment of Divorce and/or Property Settlement in order for the transfer to be complete. This is mandatory for proper flow in the chain of title. So now what? Who’s financials do I collect? It will always be the Wife and not the ex-Husband.
Let me back up and tell you facts when it comes to a Mortgage and Note that both the Husband and Wife have taken out on their property. The Mortgage is a lien on the property and the Note is a promissory note or promise to pay. Just because the one party agrees to take over the responsibility of the other person’s debt in a divorce action, it does not release them from the liability of the debt unless the Wife who was awarded the property in the divorce obtained new financing to totally remove the Husband. So … what do you do?
After looking at the Property Settlement and/or Judgment of Divorce, if a certified copy of the Judgment of Divorce has the specific verbiage of transfer, I would not need a Quit Claim Deed. I would send a copy of the documents to the title company to confirm that they will insure the chain of title with this document being recording versus requesting a Quit Claim Deed. If the ex-Husband will agree to sign a Quit Claim Deed to complete the transaction, I would request that the title company prepare this so that I can be sure that the ex-Husband is not required to sign any future documents needed in order to complete the short sale and sell the home. As a Realtor, I would have the Wife sign the listing agreement, purchase agreement, and provide all of her financial documents. I would request that she acknowledge in her hardship letter that she was awarded the house in the divorce and is unable to keep up with the payments. I would also provide to the Short Sale Lender a copy of the Property Settlement and/or Judgment of Divorce showing that there was a transfer so that they don’t keep asking for the ex-Husband’s financials. My biggest concern is to make sure that I obtain a full satisfaction for the lien as the ex-Husband’s credit is still affected by this short sale. Although he was removed from ownership, which removes him from the short sale process, he is not removed from liability of the debt. I would also make sure that you tell the Wife that she will be responsible to claim the entire loss on her taxes and not her ex-Husband. Explain that this is not under your control because you are not a CPA; however, when the Short Sale Lender provides a 1099 on the deficiency, most of the time it will have the social security of the ex-Husband because, in most cases, the Husband is always named first on documents. The Wife will need to consult her CPA on this, as to how she claims the loss on her taxes.
Make sure you immediately pull title on this property when negotiating, as you may also find liens that the ex-Husband has attached to the property and you will have to ask the title company if these liens will need to be negotiated or can they be removed just by filing a certified copy of the Judgment of Divorce and/or Property Settlement or Quit Claim Deed.
Again to summarize we only need the Wife’s financial documents to do a short sale. Hopefully she had a good attorney and there was a Quit Claim Deed filed to make your life easier when it comes to processing the short sale.