Unlocking the Mysteries of Mortgage Loan Assumption in Divorce

Discover the key to navigating the complexities of mortgage loan assumptions during a divorce with the guidance of  Family Law Attorney Scott Levin and Tami  Wollensak, an expert Certified Divorce Lending Professional (CDLP®) who demystifies the process for homeowners looking to keep their favorable loan rates.  This discussion will help unlock the mysteries of mortgage loan assumption,  how it works during a divorce, and the steps involved in the process.

As interest rates soar, the wisdom shared in this episode could save you from the financial strain of refinancing. We discuss the essential steps to determine if your loan is assumable and the pivotal role your mortgage servicer plays. Listen as we shed light on how to determine if you can qualify, what is required to do so, and the importance of having a fallback plan, given the unpredictability of qualification.

The insights provide not just a lifeline for those entangled in the throes of divorce but also a beacon of hope for preserving one's financial health in the face of adversity. Join us for an episode rich with strategic advice that could mean the difference between a smooth transition and a rocky financial future.

As a Mortgage Loan Originator, Tami’s goal is to educate her clients, take the mystery and anxiety out of the mortgage process, and provide a sense of security and peace to each of them. Tami can lend in all 50 states. (NMLS #1963450). Schedule a call to learn more at www.tamiwollensak.com or email her at  [e-mail].

Thanks for listening and I hope you'll continue to learn more about how you can peacefully divorce.

As a divorce mediation attorney in California, Scott Levin helps couples figure out the settlement terms and draft enforceable settlement agreements so they can divorce fairly without needing to go to court. Obtain closure peacefully through an amicable divorce. process that protects families and kids.

Visit San Diego Divorce Mediation for more information and to learn more about our mission to help divorcing couples make informed decisions and fair agreements through mediation or book a free virtual consultation.

Scott Levin, attorney, mediator, CDFA®
Chief PeaceKeeper
[e-mail]
858-255-1321
San Diego Divorce Mediation & Family Law
www.SanDiegoFamilyLawyer.net

Episode Transcript

Speaker 1 (00:00):
I think.
Hey everyone, this is ScottLevin.
I am a mediator and family lawattorney in California and since
the rates have really gone upover the last I don't know year
and a half or two in terms ofmortgage loan rates, more and

(00:21):
more of my clients are trying tofigure out, you know, how to
assume a loan on a primary homeso that one party can own the
house without having to refi theloan.
So basically, at the end of theloan assumption process, one
person's the owner and only theyare on the loan, and the other

(00:44):
person, their former spouse, isno longer attached to that loan
in any way and they keep theloan rate that they had
originally.
So a very different processthan refi a loan, which
obviously resets the rates.
And I am joined today by Tammy,who is an expert in this field
and helps lots of peopleunderstand loan assumptions.

(01:07):
And I guess Tammy I've talkedlong enough Tell us how does
someone know, or what are theways for them to know, that if
they can assume a loan, yeah,thanks, scott, this is such an
important topic.

Speaker 2 (01:19):
And when then I get, literally every time, somebody
jumps on the phone with me, theymight not know that word
assumption, but exactly what yousaid.
That's releasing one party fromliability on the loan itself
and allowing them to keep theterm.
So they asked me can I assumemy mortgage?

(01:40):
I cannot tell you whether ornot you can assume your mortgage
.
Here's the thing Every mortgageservicer, the person that you
write your mortgage payment to,that person, that entity, that
company, is the only one thatcan tell you if your loan is
assumable.
You cannot call your loanofficer.

(02:00):
A lot of times they don't evenknow.
You need to call the servicer.
So call them, and then you sayhere's the thing, the key is, I
am going through a divorce.
That's the trigger to sometimesservicers allowing this to
happen, so that you say I'mgoing through a divorce, is my

(02:23):
loan assumable?
They're going to say yes orthey're going to say no, and
then you're going to knowwhether or not, how, what the
next steps are.

Speaker 1 (02:34):
You know it's interesting in my practice.
So if they say yes, thatdoesn't mean that they're saying
it will happen.
They're saying it's possible,it can happen.

Speaker 2 (02:42):
It's a possibility, yeah.

Speaker 1 (02:44):
It's a divorce mediator.
When I'm working with bothsides to a divorce and helping
them arrive at settlement termsOftentimes one person who wants
to assume a loan we have tobasically project forward what
the agreement terms are going tobe if that happens.
But at least in California theloan assumption process really

(03:05):
doesn't get started.
They don't let you apply untilyou have a signed settlement
agreement.
So it's kind of like you haveto have option A if this happens
, but then you have to haveoption B in case it doesn't,
because you won't know if itwill or won't.
What are some of the factorsthat are most important to it?
Is there a set of factors thatare more important to

(03:26):
institutions allowing anassumption?

Speaker 2 (03:29):
Well, it is what's called a qualified assumption.
So if you have two people thatare originally qualified for a
loan, with both of their income,both of their assets, both of
their credit, and now you'regoing down to one person, they
want the lender wants to ensurethat that one person can carry

(03:50):
that debt right and that they'renot taking more risk by
eliminating or releasingliability from that other person
.
So they're going to make thatperson go through a set of
qualifications.
So if you have any creditissues, if you're going to be
receiving support in any way orcapacity, if you are not sure if

(04:12):
you have any contingentliabilities meaning liabilities
that you might be taking on orother liabilities since you took
out the loan all that stuff isgoing to come into play.
So having a plan B isabsolutely critical in this
situation is to not just saying,oh yeah, my loan is assumable.

(04:32):
You have to be very comfortablewith the fact that you're going
to qualify to do that, or havea plan B for sure.

Speaker 1 (04:40):
Is there an option, when you do a loan assumption,
to pull out any equity as partof that process?

Speaker 2 (04:47):
Absolutely not, and this is really what's really
important.
There is some statistic outthere.
I wish I could quote it, butmore people have more equity in
their homes today than indecades.
Right, there's more home equitythat's available and that's
really the asset.
That's the amount of money thatpeople are negotiating.

(05:09):
So for quick numbers, let's sayyou own a home.
It's worth a million dollars.
I'm saying this because thisyear in California, right?
So a million dollar home with a$500.

Speaker 1 (05:19):
Don't tell you what they used to.

Speaker 2 (05:22):
There isn't anything other than that A million dollar
home, $500,000 loan balance.
You're negotiating $500,000.
Right, that's the asset, theequity in the home.
If you're assuming the mortgage, all you're doing is taking on
the current debt of the $500,000.

(05:43):
You have to negotiate thatother $500,000, maybe $250,000
and $250,000, whatever that endsup being.
However that's negotiated, youhave to take care of it another
way, through either other assets, some other version of taking
care of that.
You cannot roll any of it intoa new mortgage.

Speaker 1 (06:05):
Does the person who's coming off the loan in an
assumption process have to signany paperwork?

Speaker 2 (06:15):
Yes, when somebody is assuming that current debt,
then they're releasing liabilityof the other person.
They're also releasing theirownership interest in the
current home.
So they're quick, claiming offthe deed.

Speaker 1 (06:30):
So they're saying If the deed still is in both
parties' names during theassumption process, the
institution will prepare thatpaperwork.

Speaker 2 (06:40):
They don't really prepare it, but they want it
recorded.

Speaker 1 (06:43):
Yes.

Speaker 2 (06:44):
They'll have.
You usually have a real estateattorney or somebody prepare the
deed itself, but it does needto be recorded that this person
is not only releasing liabilityof the mortgage but releasing
their ownership interest in thehome as well.

Speaker 1 (07:05):
So we talked about how it happens.
We talked about some of theprocesses for doing that.
I guess my next question iswhat are some of the pitfalls
that might exist in arriving ata loan assumption?

Speaker 2 (07:27):
So I tell people there's three things that they
really need to be askedquestions and be comfortable
with Do I qualify?
It would be number one Is itgoing to, Am I going to be able
to qualify for this assumption?
Number two is what are thecosts and the fees that come

(07:48):
along with this?
I've heard upwards of severalpoints, and a point is a 1% of
the loan principle balance.
So in one person's instancethat came back to me, I tried to
get a lot of information aroundthis.
They wanted three points to dothis and it was going to cost

(08:09):
that client $10,000.
So this is out of pocket.
You're not getting a new loan.
So it's not like these thingscan be rolled into a new loan.
This is a check that theywanted upfront.

Speaker 1 (08:23):
I guess there's no competition right.
You're either getting anassumption from the current
institution or you're not.

Speaker 2 (08:28):
That's it.
Yeah, so they have their ownset of parameters, guidelines
and fees.
And then, what's the timeline?
Because you don't want to putin your settlement that you're
going to do this in 60 days, 90days, if they're waiting six
months to do this, and I knowsome large banks that say it's a

(08:49):
six-month process.
So make sure you don't put thatyou're going to do this in 90
days if it's going to take sixmonths, just to find out.

Speaker 1 (08:58):
And that's also something that if you're working
in divorce with an attorney ormediator, however you're
processing it, you have to hiresomeone that really has genuine
expertise and experience,because that comes up all the
time in my practice, where oneperson wants off and they're
negotiating a buyout and they'rereally focused on the money

(09:18):
right and when they're going toget it, and that's the part of
the negotiation.
But then in terms of whenthey're coming up alone and when
they're coming off title, Ioften say, hey, I know you want
to do it in 30, 60, 90 days, butwe can't put anything in this
settlement agreement that'senforceable and by the courts
that that's going to trigger theend date prior to when I know

(09:41):
that it's going to theassumptions going to happen.
If this function I know isgoing to happen after the end
date that we're putting in,that's called a bad deal for
everybody 100%.

Speaker 2 (09:50):
I see it all the time , scott, and it's really tragic.
I had somebody that come to methat was trying to do this
process and she was receivingsupport and it was a six month
waiting period by the time she'dbeen told no by the servicer.
She also didn't have the amountof continuance that me as a
lender, that I need in order touse that as income.

(10:14):
So the only other option thatwas in her settlement was to
sell.
So it was either assume it oryou have to sell.
So she had to sell.

Speaker 1 (10:25):
And was she considered the sole person at
that point, the owner, or werethey both owners?

Speaker 2 (10:30):
She was.
In their settlement it waslisted that she would assume the
loan by a six month period oftime and that she was the sole
owner.
That she would have to splitthe proceeds, though, from the
sale.
Oh, man.

Speaker 1 (10:48):
Well, there's lots of stuff.

Speaker 2 (10:49):
It was a bad deal for her in general.

Speaker 1 (10:52):
Yeah Well, listen, there's a lot that we could go
into in greater detail aboutthis loan assumption.
The primary home is often thebiggest piece of the pie when
you're going through divorce,and the reason that we wanted to
discuss this today, tammy and I, is because loan assumption is

(11:12):
a unique option.
It's something that isavailable to many people, but it
does take a level of planningand guidance and expertise to
kind of think through, andthere's no doubt that Tammy has
all of those things.
So I encourage you to reach out.
We're going to put all of ourinformation in the description
here, but, tammy, any last words?

Speaker 2 (11:34):
No, I think that being a better making, a better
informed decision regarding thisis going to be give people
peace of mind as they moveforward in their next chapter,
absolutely.
So thanks for having me.
I appreciate it.

Speaker 1 (11:47):
Thank you See y'all soon.

Speaker 2 (11:52):
Bye guys.