Jon Lafferty:
Hey everybody, welcome to Avoiding Real Estate Turbulence Podcast. This is your pilot, Jon Lafferty with Century 21 Town and Country.

Tony Abate:
And co-pilot, Tony Abate with Ross Mortgage, and we are your real estate pilots. That’s you-

Jon Lafferty:
That’s me. Our job is to be a real estate advocate, and also make sure you’re educated about the buying and selling process. We’ll keep you informed throughout, until we get you safely to closed.

Tony Abate:
Yeah, it’s all right Jon, you had the hard part today. Hey, in real estate transaction, there are many reasons why you can encounter turbulence. Today, we are going to talk about how divorces can impact both purchasing, selling, real estate and also financing real estate. So today, I’m pleased to have a colleague of mine, Mr. Marc Edelstein is here with us. How are you doing Marc?

Marc Edelstein:
Good, good-

Tony Abate:
Good. So Marc has been a lender for 17 years. He is a certified divorce lending professional. I think I got that right.

Marc Edelstein:
Mm-hmm (affirmative).

Tony Abate:
And a lot of folks might not know that that’s even a designation, it absolutely is. It’s not something that a person gets overnight, it takes some effort, it takes some dedication. And I think in our business we kind of learn the hard way when we’re early on, that a divorce in a transaction isn’t just an extra document, it can absolutely affect the flow of the transaction and, whether it’s even doable or not.

Marc Edelstein:
[crosstalk 00:01:44].

Tony Abate:
Thanks for coming on board, Marc.

Marc Edelstein:
Absolutely, thanks for having me.

Tony Abate:
Yeah, yeah, yeah. We went over some Q&A prior to about some of the things that impact things, but Marc if we could, why don’t we just kind of let you paint a 10,000 foot view picture of the kind of things that folks need to at least be thinking about when there’s a divorce in their life, and there’s going to be a sale of real estate, purchase of real estate, et cetera.

Marc Edelstein:
Sure, sure, sure. When it comes to divorce in real estate, and divorce in mortgage lending, there are lots of mortgage lending guidelines that intersect with the family law. So a lot of times, we see a spouse that needs to re-enter the workforce after an absence being out of the workforce, or somebody who is going to be receiving some sort of support, whether it’s alimony or child support, as their form of income on the other side of the divorce. And how can we use that income towards qualifying? So that’s a big thing that we see a lot. The other thing is your mortgage debts tend to be joint with husband and wife. And so when one spouse is awarded the home for the divorce, and the other spouse is either getting an equity buyout, or just [inaudible 00:03:09] off of the home, if there’s no equity to split, that mortgage becomes what we call contingent liability.

Marc Edelstein:
And so how does the payment history after the judgment on that mortgage, that our borrower is not responsible for any longer, impact their ability to be able to purchase a home? As far as other guidelines and other things to consider, it’s really the timing of filing of your divorce. If you file your divorce, and then you go to apply for mortgage to purchase a new primary residence, and your divorce is not final, it makes things very, very, very complicated. Most lenders will not grant you a mortgage approval without either a legal separation agreement, or property settlement agreement signed by a judge or your final divorce decree.

Tony Abate:
Yeah, yeah. And, Jon, you probably had conversations. I mean, think about the natural progression of things. There’s the unfortunate things that lead to a divorce, the divorce is filed, and then one or both parties are thinking, I need to move on. So I’m going to start house hunting. But they’re in that window where the divorce is filed, but it’s not finalized.

Marc Edelstein:
Right. So you know Tony, on the loan application, we have a declaration section where we ask nine, 10, 11 questions about your citizenship, do you intend to occupy this home? Are you going to borrow any part of the down payment? Stuff like that. Well, one of the questions is, are you [inaudible 00:04:32] to a lawsuit? Fannie, Freddie, FHA, VA, they don’t consider divorce as a lawsuit. So you’re not required to declare on that section on the application that you are currently going through the process of divorce. So working with the proper lender who’s going to ask the right questions is really, really, really important when it comes to trying to finance a home through divorce, or refinance post divorce.

Jon Lafferty:
At what point do you ask that question, when somebody’s filling on an application-

Marc Edelstein:
So we can’t, we’re not really allowed to ask whether you’re divorced or widowed.

Jon Lafferty:
Or going through a divorce?

Marc Edelstein:
The application asks if you’re married, unmarried or separated? Those are the three answers to that question. So if somebody is separated, I’ll probe a little bit, but I’m not asking questions that are, I guess, against the law. Most people are pretty forthcoming and they just let you know what’s going on from the beginning. Because reality is most of the time the referral’s coming from the family law attorney. So it’s pretty much a given that that’s what’s going on.

Tony Abate:
Yeah, yeah.

Marc Edelstein:
All right. So buying a house, trying to purchase a home while you’re going through divorce, it becomes very tricky.

Tony Abate:
Yeah.

Marc Edelstein:
Even if you’re the breadwinner, and your wife’s, your ex spouse is going to get the house, and you have more than enough means to qualify to purchase a new home, and you can support the current marital debt before it’s all divided. Problem becomes is, what is the occupancy of the new place? You’re married, and you have a primary residence, and now you want to purchase a new primary residence… Well, what are you going to do with the existing primary residence? “Oh, well, we’re getting divorced.” “Oh, I see.” Or, some people just say, “Hey, we’re going to sell it.” But then that becomes a little complicated because, you buy a new primary residence, you’re still married at the time it closes, that’s marital property. Probably not the best strategy.

Tony Abate:
Yeah. Well, and I know, realtors that are not new to the game, like you said, that life story comes up. And a potential buyer or seller is talking to you, and when that topic comes up, I think good agents will say, “You can’t leave that out when you’re having this discussion with your lender.” It’s such a critical thing. And what we don’t want to have happen, and I’ve seen this, is that if it’s never brought up at all, but the individual buying the home is in the divorce, it comes up when the title search comes through, correct? Because they do a public record search, and then that title commitment is going to say, we got to see that final divorce decree. It’s like, divorce decree, nobody said anything about that. So let’s say-

Jon Lafferty:
That’s where it came up in the transaction I had.

Tony Abate:
Did you have one like that?

Jon Lafferty:
Uh-huh (affirmative).

Tony Abate:
Yeah.

Jon Lafferty:
Had the listing, guy made an offer on the property, we get about seven days out from closing, I get a call from his agent, his buyer agent, and says, “We can’t close.” “Why?” This is in California, in California, you have a six-month cooling off period before it’s finalized.

Tony Abate:
Okay.

Jon Lafferty:
So everything’s agreed to, everything’s in place. Six months cooling off period, finalized. We’re two months away from that six months being final. And so he went to his soon-to-be ex wife and said, “Will you sign a quitclaim deed?” She said, “Nope. Go ahead and buy that house, go ahead and buy that house.”

Tony Abate:
Got a new asset now, huh?

Jon Lafferty:
So he said, “I can’t close for two months, but I will close.” And the seller at the time said, “We’ve got to close, we’re going to have to move on.” And he forfeited his deposit of nine grand.

Tony Abate:
Nine grand, two months is an eternity in a real estate transaction. Painful-

Marc Edelstein:
Yup, for sure. And we’ve heard similar, very similar stories. In title companies, when they go and issue a total commitment to a lender, they are doing a public record search for those folks names. And if it comes up that there’s you know, pending divorce, it shows up on title commitment for sure.

Tony Abate:
It’s such an important conversation because it comes up through the search, but it’s not like somebody was doing something nefarious or secretive. They probably just didn’t know to disclose it. But it’s important to know that, it’s such a natural progression, I’m getting a divorce, I’ve got to go find a new house. But there’s those hard stops that say, you’ve got to get that darn thing finalized or it just isn’t going to be. I was just thinking, it makes sense if somebody is thinking about the divorce, or if it’s in the very, very early stages, it makes sense to involve you in the conversation, even if their home purchases four or five, six months out, is that safe to say?

Marc Edelstein:
Oh, absolutely. And that’s basically, a large portion of my prospect pipeline currently are people that are in the divorce process where their attorneys refer them over to me. We do essentially a pre approval, for whatever the reason would be, whether they’re going to purchase or they’re going to have to refinance at the end, and we figure out how much support is needed. If the borrower is either a, re-entering the workforce or b, going to rely on support of some sort, or both. So yeah definitely, getting involved early on in the process is by far the best way to go about it. Because then you know exactly what things are going to look like on the other side.

Tony Abate:
One of the things that intrigued me when I first even heard about this designation, was the fact that it’s also beneficial to bring you into the conversation with the attorney. So that as the decree is structured, there can be some dialogue as to, you know, party A is really going to want to buy a house afterwards, let’s make sure that you avoid certain things or include certain things in that decree, so that it doesn’t impact that buyer down the line.

Marc Edelstein:
Correct.

Tony Abate:
Because it’s happened-

Marc Edelstein:
We’ve had revolving marital debt, credit card debt, that the attorneys thought, it should be divided one way, but based on our borrower’s financing at the end to be able to purchase a new home, we had to shift some that around and come up with a different agreement. Because this person could not handle that debt and still be able to purchase.

Tony Abate:
Well and I think just from a standpoint of streamlining the deal, very, very early on in my career, I haven’t seen this in a long time, but a person who was recently divorced came forward with a divorce decree, and the language was the liabilities were going to be mutually divided. And the assets were going to be mutually divided. Like, well, that makes it a little difficult to plan. Luckily, they tend to parse it out more specifically, but what is mutually divided, I mean it doesn’t automatically mean 50/50 even.

Marc Edelstein:
No.

Tony Abate:
So as much as we complain about what underwriters do, you can see an underwriter saying, what the heck does this mean? Do they have the asset or don’t they have asset?

Marc Edelstein:
Right.

Tony Abate:
It’s tricky.

Marc Edelstein:
Yeah. Well the first decrees, they tend to be pretty specific now. I mean, you really don’t see language like-

Tony Abate:
It’s been years, yeah-

Marc Edelstein:
… that any longer. Some of these things are volumes thick.

Jon Lafferty:
Especially when you’re talking a lot of assets, I’m sure.

Marc Edelstein:
For sure.

Tony Abate:
So if you were to say to somebody who was thinking of a divorce, here’s some things that you absolutely need to be considering, here are things that no matter how your conversation goes, whether it’s amicable or non amicable, make sure that you’re getting to a conclusion or getting to an end result on these particular things. Is there a hit list or a punch list that you talk about with consumers? [crosstalk 00:12:30].

Marc Edelstein:
Well, some of its individual, but then some of it’s very general, just like the same conversations we have with lots of our clients. Maintaining credit is probably the most important thing. And divorces is an emotional time. And so people make irrational decisions. And if you’re responsible for a debt while you’re the owner or the co-owner of that debt, you have to make sure that that debt gets paid to maintain your credit, if you have any designs in being able to purchase or refinance your home. That’s a huge, huge, huge one. for sure.

Tony Abate:
That’s a good point, now that you mentioned that I’ve seen that scenario where somebody has had two or three late visa payments in a row, and the conversation comes up, because we have to ask, “What went on here? Why were these late?” It’s like, “My ex spouse, he or she was out charging things willy nilly, we weren’t talking about it, I’m not going to pay that debt.” And while maybe there’s some logic to the conclusion, based on the other person’s spending, from an underwriting and loan standpoint, that debt is jointly… they’re both responsible, that’s all there is to it.

Marc Edelstein:
That’s all there is to it.

Tony Abate:
So predictably Visa isn’t going to say, “You know what, you’re right. You don’t have to pay that, because that spouse shouldn’t have bought that round of golf, or the fur coat, or whatever it was that might have been out there.”

Marc Edelstein:
Yeah. So maintaining credit, definitely a big, big thing. Timing of filing is a big thing. And family law attorneys can speak much more to that, but based on, the education and the experience that I have, timing is really, really important. A lot of it has to do with tax filing purposes. So the IRS is going to look at your marital status as of December 31 of the filing year. So if you if you file, and your divorce isn’t final by the end of the year, the questions become, do you file jointly? Do you file married filing separately? So getting with other team members is part of the divorce, because it shouldn’t just be the family law attorney. It should be a mortgage lender, it should be a certified divorce real estate specialist who may be helping with the purchase or the sale the home. And it definitely should be a tax advisor, just lots of tax ramifications within divorce as well. So the time is the filing is very, very important. Timing of filing, credit, what else, hmm.

Tony Abate:
Probably-

Marc Edelstein:
If you’re going to be receiving support, you should know that just like any other type of passive income, so support is considered passive income. So its income that is not earned through labor. So just like Social Security benefits or retirement accounts or VA benefits, it’s passive. So passive income in our world in mortgage lending, has to continue for a period of time for it to be considered stable enough to be used to qualify for the mortgage. So conventional and government loans have different timelines on how long you need to be receiving that support, and how long it needs to be continued. So for conventional financing, you must receive that support for at least six months of receipt, plus, it has to continue for at least three years.

Marc Edelstein:
So if you have a few children in the home, we look at the breakdown of the final support order run. It always says for one child it’s X amount, for two children it’s Y, and for three children it’s Z. And we look at the dates of the children to find out, okay, are they going to turn 18 or graduate from high school in the next three years? If they are, then we strip out that portion of the support, because we can’t use it and it’s not going to continue. So it’s not like all of it gets dis disallowed, just the portion for the child who… or where that income won’t continue for three years.

Tony Abate:
So if there’s child support, and they’re 17 year old triplets, that’s going to end soon, that changes things in a big way. You were curious about a situation similar, and you probably run into it, whether you have a non-working spouse. Now there’s a divorce, they’re going to be receiving some sort of support. Are you seeing expectations from folks in that situation, or are they just really not knowing how it works? Because I think in many cases, the idea is, I want to use that support payment to qualify-

Jon Lafferty:
Well, yeah, I feel like sometimes non-working spouses feel trapped, like they have to stay in the home or they may be stuck because the prospect of them going out and getting a job at… let’s say they’re older at this point in their life, in their late 50s, early 60s, they just don’t see it as feasible. So sometimes they feel trapped, that, well nobody’s going to approve me for financing even though maybe my spouse is going to be paying me some alimony support. And maybe that’s set to sunset when I start receiving part of his pension and social security at 65 or whatever. So see that sometimes, and how do you figure all that out? You said that the timeline is three years minimum, that the-

Marc Edelstein:
Continuance-

Jon Lafferty:
… receiving income, to be able to count that towards earned income.

Marc Edelstein:
Correct.

Jon Lafferty:
So when you have a situation like that, where you have a form of payment sun setting, and then a new form of payment coming in, and let’s put it within that timeline, where you’re going to have a different kind of payment. How do you figure all that out? Is it just simply the simple fact of running numbers and figuring…

Marc Edelstein:
Well, it’s gathering documentation, being able to document what the current arrangement is, and what the future arrangement is going to be. And let’s say it is within that three year period. And so it’s in limbo, whether or not any of that income is going to be allowed to be yours. If that was the case, me not being an underwriter, I would take that to an underwriter and present the whole scenario and let them help guide me through that. Because that’s really unique, that’s something that I don’t think you would see all that often, but it’s quite possible for something like that to happen. So yeah, I would have definitely some underwriting guidance with a scenario like that. But as long as it’s going to continue for three years, and it’s been received for at least six months, it’s perfectly fine to use.

Marc Edelstein:
If somebody wants to go back into the workforce, and they’ve been out of the workforce for raising a family, there’s some guidelines specific to that as well. One, they need to be on the new job for at least six months. And two, you have to be able to document a two-year employment history prior to them leaving the workforce. So if it was 12 years ago, you’ve got to somehow drum up two-year work history 14 years ago.

Jon Lafferty:
Yeah, imagine your spouse. You haven’t worked for 20 years because you were at home raising three kids, and now you’ve got to jump back in the workforce. So you’ve got to dig out those old W-2s from…

Marc Edelstein:
Good luck.

Tony Abate:
Yeah, it’s tough, it’s tough, yeah. But you know-

Marc Edelstein:
But you can get copies of tax returns directly from the IRS.

Tony Abate:
Yeah. And you look at it from the underwriting perspective, and you can kind of see where there is… it sounds harsh, it sounds harsh, but the reality is that person knew what their work world was like back then, they’re jumping back in, and they probably have some idea of what their work life is going to be, but they don’t know for sure. And from an underwriting perspective, it’s similar. It’s like, well, they haven’t done in a long time, is this going to be sustainable? Is it two apples and oranges? So it’s fair questions, but it’s a difficult situation for that person who’s entering the work force.

Jon Lafferty:
Well, can I ask you, what if let’s say 10 years ago, they were working as a advertising exec, and then they started a family, they get divorced, and now this person is let’s say going into retail, and going to work at a store as a maybe an assistant manager or something, completely different. Does that play at all in determining…

Marc Edelstein:
Potentially. I think it’s more important to be able to establish the work history before leaving the workforce.

Jon Lafferty:
Okay.

Marc Edelstein:
Especially with that amount of time that has passed, the change in career, I just don’t think is that big of a deal?

Jon Lafferty:
Okay.

Marc Edelstein:
As with every mortgage, we go directly to the employer to verify employment. Well, some of the questions we also ask is, what’s the probability of continued employment? And are they due for a pay raise? And if so, when is that date? So we get a lot more information just rather than you know, I make $25 an hour, I work 40 hours a week, and here’s my pay stuff.

Tony Abate:
Yeah, yeah. And I think too, just in general, even outside of the kind of scenario that you’re talking about, career changes are maybe less damning than they were a number of years ago. If somebody is bettering their financial situation, and it’s stable and it’s predictable income, then the fact that they were the advertising exec before, and now they’re going to be the retail manager, I would agree, that’s a manageable situation. Like it gets tricky if they jump into an hourly role, that doesn’t have a minimum.

Marc Edelstein:
Correct. Or they’re part-time. Part-time employment is completely separate. For part-time employment, for that income to be considered stable, you have to be earning that for a couple of years at that part-time pace. So some people would go to work part-time because they’re receiving some support, it might not even be enough to live off of a maintaining lifestyle, but they can supplement that with some part-time work. That becomes difficult income to use and argue for.

Tony Abate:
Yeah. Yeah. The other side of that coin is we don’t want to be contributing to get somebody in a situation that now is not manageable for them. Part-time is what it is, it’s variable.

Marc Edelstein:
And one thing though, that when I talk to family law attorneys, and we discuss things like this, we call it the 336 rule for the income, 36 months of continuance, or 636 rule, six months of receipt, 36 months of continuance. When I talked to family law attorneys, one of the things I recommend that they do is, if they know that their client is going to be receiving support, start temporary orders right away. Because it’s not about the amount that they’re receiving and the temporary amount, it’s about getting that six month clock ticking.

Tony Abate:
That’s a good point.

Marc Edelstein:
So if they’re receiving, let’s say, two grand in support on temporary orders, and then the final order comes out and it’s $4,500, but they’ve been receiving the temporary for five months already, bam, all I need is one more month, and that income is good to go.

Tony Abate:
Well, that’s good advice-

Marc Edelstein:
So starting those temporary orders is a big thing. Being able to get that clock ticking works out a lot of times in everybody’s benefit. Because the two spouses are still going to remain in the home through the final divorce and divorces aren’t a quick process. It’s possible that the timing of everything would be such that that the spouse that’s going to leave the home is going to receive their sixth payment the same month the divorce is going to be final, and man, it’s just seamless.

Tony Abate:
So a temporary order, okay. I-

Marc Edelstein:
Temporary orders-

Tony Abate:
… [crosstalk 00:24:19] yeah, yeah, get that six months under their belt-

Marc Edelstein:
Correct.

Tony Abate:
Yeah, yeah. Very cool. Yeah.

Jon Lafferty:
I’m curious, have you had any situations where there’s a divorce, they’re going to sell the house, they’re going to split it. One spouse doesn’t work, receives the proceeds, which is, let’s say enough for what that one wants to buy. Let’s say it’s 70% of the total purchase cost, but needs to finance the other 30%. Will they qualify with 70% down, even though they may not have any income at the moment?

Marc Edelstein:
No. No income, no mortgage.

Tony Abate:
And I tell you-

Marc Edelstein:
You could put 95% down, and need to borrow 5%.

Tony Abate:
Yeah.

Marc Edelstein:
If you have no method to pay back the loan… no.

Tony Abate:
Yeah, post recession, Washington got involved in underwriting basically. And they brought in what’s called the ability to repay rules and qualified mortgages. And it’s just that, to a great extent. It’s like your equity position counts, but it doesn’t count. Now, there’s, for better for worse, programs coming back into our industry that will allow loan approval with either limited income verification, or minimal, some of the non conforming stuff is coming back. But I hear you, pre recession, lenders would sometimes say, hey, we’ve got enough equity position here. Where’s our risk? Let’s just go. And it absolutely doesn’t work that way.

Marc Edelstein:
Yeah.

Tony Abate:
Yeah. So it’s a tough situation.

Jon Lafferty:
So that spouse hasn’t worked, and even though they’re going to get a big windfall, still has to go out and find a job to have some income for six months in order to be able to-

Marc Edelstein:
In order to receive some support.

Jon Lafferty:
… Or support. In order to make that purchase.

Tony Abate:
And qualifying it as defined windfall too. I mean, there’s methods that we can use to calculate income out of assets, but it’s a really conservative calculation. And chances are, if they have enough assets to make that type of calculation works, they may be inclined to just pay cash for the house anyway-

Marc Edelstein:
That’s right-

Tony Abate:
… Because you need a you need a substantial amount of assets, because the lender calculation that we’re forced to use assumes that it’s going to last for 30 years. And you can take almost any bank balance and you divide it out over 30 years, the per month is a pretty modest figure.

Jon Lafferty:
I’m curious with a lot of the gray divorces that are going on out there, in your experience, have you come across any that are so complicated because of 401Ks, IRAs, investments, savings accounts, assets in the house, second houses, third houses… I mean, all this stuff that they have-

Marc Edelstein:
Everything you just mentioned, and then they have a family business. I mean which complicates it even even more, absolutely. And God bless those family law attorneys that work with that type of clientele. I mean, I can only imagine, what that all looks like. And how many hours are spent. But there are plenty of people out there. There’s firms that do business valuations, and so you just hire somebody like to value the family business. And there’s plenty of certified divorce financial analysts out there as well, that’s another designation a CFP could get, certified financial planner, can become a certified divorce financial analyst.

Jon Lafferty:
But do they want to? Because some of these divorces are so contentious, and so vindictive. How do you, I mean, you probably don’t get stuck in the middle, because you’re dealing with one, generally speaking, but…

Marc Edelstein:
To be honest with you, and I know this is going to sound strange, but most of my family law business comes from what’s called a collaborative divorce process. It’s not contentious, there is no litigation, there’s no mediation. It is a completely different process and a different way of thinking on how to restructure the family. So that’s where most of my business comes from, is from that divorce process. I do get stuff that is litigated and mediated, but not nearly as much has come from that collaborative process.

Tony Abate:
That’s good to know-

Jon Lafferty:
Wow, how do I get on that [crosstalk 00:29:05] football team.

Tony Abate:
Yeah, that’s good to know, though. And is it safe to say, and not to stray away from the real estate side of things, is it safe to say that that happens, because going down the other path and litigating, that gets really expensive and time-consuming?

Marc Edelstein:
Well, the collaborative process is not cheap either. I mean, I think that, from what I’ve been told, I’m not an attorney, so I dare can’t really speak to fee structures, but I’ve been told that it’s very comparable to a litigated or mediated divorce-

Tony Abate:
Oh, is it? Okay-

Marc Edelstein:
… as far as costs go. The biggest benefit is that the two spouses are the ones that are putting together the settlement to restructure their family. And it’s all run by a mental health professional, and the attorneys are really there for emotional support. And then when the settlement agreement is reached, to prepare all the legal paperwork. Because nothing gets filed until the settlement is already done.

Tony Abate:
Oh, wow.

Marc Edelstein:
The court doesn’t even know that… well, let me take that back. I think you do need to notify the court potentially, that it’s ongoing, but yeah, nothing really goes to a judge until the settlement has been reached. And these attorneys do not do any litigation at all.

Tony Abate:
Wow, mm-hmm (affirmative).

Jon Lafferty:
Seems like a more civil process.

Tony Abate:
Yeah.

Marc Edelstein:
I mean, it takes a special family to be able to go through that process.

Jon Lafferty:
But obviously, you’ve had quite a few because that’s where you say you get a lot of your referrals from.

Marc Edelstein:
Correct. Correct.

Tony Abate:
Well, that’s good. Good to know that there’s momentum behind that, and it’s actually a thing, because my goodness, it’s painful enough I would have to think. And then when you add the contentious nature to it, it gets tenfold worse. And conversely, if you can take that part away, it’s just a little bit… it’s a smoother ride through a difficult time, I would think.

Marc Edelstein:
Yeah, for sure.

Tony Abate:
Yeah, yeah, yeah. The important takeaway right now though, is that both parties are going to need a roof over their head after the fact, in some way, shape or form. And so the knee jerk reaction is call that attorney, but boy, they need to involve you in that conversation early, they need to involve the real estate professional involved in that conversation early. And in doing so, then hopefully the right outcome happens on the tail end.

Marc Edelstein:
And that’s always the goal.

Tony Abate:
Yeah, yeah, yeah. Interesting. Interesting.

Jon Lafferty:
That is a good call in the end.

Marc Edelstein:
Yeah. But here in Southeast Michigan, and these are 2017 stats, Oakland, Macomb, Wayne County, 10,000 divorces between the three counties combined.

Tony Abate:
In 2017?

Marc Edelstein:
2017.

Tony Abate:
Wow. Wow.

Jon Lafferty:
That doesn’t seem like a lot, based on the number of people that live in the area.

Marc Edelstein:
Well think about this-

Tony Abate:
That’s one year though-

Marc Edelstein:
… 70% of those included real estate. So that’s 7,000 pieces of real estate that need to be refinanced, sold, spouses need to purchase a new home, that’s a lot of real estate transactions tied to divorce.

Jon Lafferty:
It is.

Tony Abate:
Yeah, and I think the other important thing is, is that, you don’t want to start navigating that after the decree is finalized, because it’s finalized. And then whatever you’re left with is what you’re left with. And that can, as we said before, it does have a huge impact on how much a person can buy, or if they can even buy after that divorce.

Jon Lafferty:
Well, it seems to me part of the whole informational process is, you get a realtor involved early on because you need to know the approximate value of the house in order to figure out how much equity is in it, and how that’s going to be divided.

Marc Edelstein:
Family law attorneys, most of them at least have a couple appraisers in their Rolodex that they can call for stuff like that.

Tony Abate:
Yeah.

Marc Edelstein:
I don’t necessarily know that the family law attorney thinks realtor for property value before an appraiser, I think they think the appraiser first.

Jon Lafferty:
Okay.

Tony Abate:
Take that Jon-

Marc Edelstein:
But here’s the other thing, one thing to know about the appraisal. So you go and have an appraisal done on the home as part of the divorce process, that appraisal is called the general purpose appraisal, it’s not an appraisal for mortgage financing, and that can’t be used. If that house needs to be refinanced, you can’t use that appraisal, we have to have another one done. And conversely, if you say, okay, well we’re going to get the house refinanced, so whatever that appraised value is on that appraisal, that’s the value we’re going to use to split the whole thing up. Well, because it’s an appraisal for financing, the court may say, I’m sorry, we’re not using this appraisal, you have to have a general purpose appraisal.

Tony Abate:
Yeah, yeah, yeah. Out of 30 some odd pages on an appraisal, probably 10 of it is disclaimers and all the stuff that you can’t use an appraisal for-

Marc Edelstein:
Yeah, point being is there’s a couple of different appraisals, right? We use one for financing, others use different types of appraisals for general purposes like divorce. So just be careful which ones you get?

Tony Abate:
Yeah.

Jon Lafferty:
Do you ever see a point in time coming down the pike where the appraiser will not be provided the purchase agreement, so that they know what the purchase price is? So I won’t cloud their judgment or influence? What say you?

Tony Abate:
Wow, I see both sides, honestly.

Jon Lafferty:
I mean because think about this, right? You’re sending an appraiser out for a general purpose appraisal to establish value for the divorce settlement. And while that’s good information, what I would suggest is, you would also use a realtor as well, because a realtor who’s familiar with an area is going to have a better idea of what somebody is willing to pay for a property. And then we know that the appraiser then gets that purchase agreement with the purchase price on it, and even though this person may have said, yeah, it’s only worth this much, and the realtor says, well, I know I can get this much for it, and somebody’s willing to pay that, then they get the appraiser comes out and says, well yeah, the purchase price says they’re willing to pay 470, yeah, it’s worth 470.

Tony Abate:
Yeah, yeah, yeah. Personally, Marc I don’t know what you think, that’s an age-old debate.

Marc Edelstein:
Yeah.

Tony Abate:
You know, should they have it, or shouldn’t they?

Marc Edelstein:
I mean for the sake of being able to keep commerce flowing, they probably should have a copy of the appraisal. And I do think that the agencies have compiled a massive database of housing data. And when we run our automated underwriting, if we’re way off, there’ll be red flags.

Tony Abate:
True.

Marc Edelstein:
So sure, give a copy of the appraisal just because we want to keep the pipeline moving.

Tony Abate:
Copy the purchase-

Jon Lafferty:
Copy the purchase, yeah I know what you meant.

Tony Abate:
The advocates of that will say, the transaction date is relevant, the terms are relevant, what may or may not be included is relevant. And there’s some merit to all that, we’re off-topic a little bit, but it’s a good topic. And then the other side would say, look, if this is going to be a third party objective review, then make it a true third party objective review, and let him give his opinion of value without being swayed by the terms of the contract. I’ll be Switzerland in that, I see both sides, I really do. And I would say for a long time in our business, the appraisal process in general has been a little broken. It’s not perfect, but as far as all the things that need to be fixed in lending, it’s probably way down the list. And short of the appraisal waivers that we see sometimes now, it’s probably not going to change anytime soon. We’ve had a lot of colorful conversations on the outcome of appraisals and things like that.

Jon Lafferty:
We have.

Tony Abate:
Yeah, yeah, yeah. You know an interesting thing that I remember thinking about divorce situations is, when there’s a marital home, and the marital home is to be sold, pursuant to the divorce decree, typically there is a division of the proceeds provided that both parties on the hall may contribute so on so forth. There is an interesting thing during the recession, where people had negative equity, and then instead of splitting the proceeds, they split the red ink-

Jon Lafferty:
Split the debt.

Marc Edelstein:
The deficit? You’re right.

Tony Abate:
Yeah, yeah, yeah. And, you know, we’ve all been around long enough that we’ve carefully guided, maybe parties who aren’t married yet who are buying a home jointly, the assumption that nothing is ever going to go wrong, and we just kind of say, be careful, because things can happen. And that’s just a great example. Somebody is in a transaction they’re at jointly, and the value goes down. And now there’s not equity to split, there’s a loss to split. That created some interesting things back in the recession times.

Marc Edelstein:
Oh, absolutely. And each scenario that you just described where two people are purchasing a home together, that are not married. I always recommended joint occupancy agreement, go and see an attorney, prepare a joint occupancy agreement, and then this way if anything ever goes wrong, how the house is going to be handled through the split, because not really divorce, it’s a split, it’ll all be figured out right from the beginning.

Tony Abate:
That’s a great idea.

Marc Edelstein:
Because can you imagine if somebody, let’s say, two people purchase a home. One of them puts the money into the transaction, down payment, costs. The other one is on the mortgage, for income and credit purposes, and then they go to split up, the person who put the money in, isn’t even on the title of the home probably, it just causes all kinds of problems.

Tony Abate:
It does.

Marc Edelstein:
So, joint occupancy agreement, for sure.

Jon Lafferty:
That’s a good idea.

Tony Abate:
Probably difficult to get people over that hump, though. They’re at a point where the stars in their eyes, everything is great, it’s probably like, carve out the movie stars and the wealthy folks, but it’s probably in the same category of advising people, “Hey, you know what? Consider a prenuptial agreement.” It’s like, “Well, why would we do that? Nothing will ever, ever go wrong.” And no one’s crystal ball is that clear, to know that nothing will ever go wrong.

Marc Edelstein:
For sure. For sure.

Jon Lafferty:
That’s true. Down to splitting the dog.

Tony Abate:
Right, can’t split the dog, yeah.

Marc Edelstein:
Exactly.

Tony Abate:
Jon, you had a question, I’m trying to find it here. [inaudible 00:40:03] buy another home prior to the divorce being… okay, we kind of covered that, with the divorce being finalized. Things are really on… I think that’s an important thing for folks that are listening to know too. You’re in that window, divorce filed, not finalized, things are just on ice. There’s not a great deal that we can do. And yeah, let me finish this up, and then I want to hear some… and I’m interested to hear your opinion on this. I’ve worked with folks in the past that they’re in that window, divorce filed, not finalized. They want to start looking, they want to get pre approved, and my response then, we can pre approve all the other elements, but the whole darn thing is going to be subject to your divorce decree.

Jon Lafferty:
And do you put that in your pre approval?

Tony Abate:
No. I’ll tell you what I do on that, and then I’ll be interested to hear your take on it. I ask them if they would want that to be on a pre approval, and generally the answer is no. And I think where it’s kind of glossed over, and you have to see it much more than I do is, in their mind they’re thinking, look on November 15, this thing is over, that is the court date, and then I’m done. But there’s a percentage of these things that just don’t hit their date. And do you really want to go back to a seller and say, “Well, my divorce isn’t finalized, so I can’t close.” If I’m a seller, I’m thinking, I don’t know when the hell this thing is going to get done. It could take months.

Jon Lafferty:
For sure.

Tony Abate:
So I don’t put it on a pre approval letter, I generally don’t issue that pre approval letter, but I’ll take it as far as they ask me to go.

Marc Edelstein:
Yeah, and I will do the same thing, except for I won’t issue the pre approval letter, and I would prefer that the buyer didn’t go out looking for homes. I stay in communication with the family law attorney, and they’ll give you the guidance you need to know that hey, you know, this is the date, it’s going to be finalized. There really is nothing to worry about.

Tony Abate:
Would you say most family law attorneys are advising their clients, no, don’t be inking contracts, don’t even try until this decree is settled. Do they get that-

Marc Edelstein:
Yeah-

Tony Abate:
… I would think so-

Marc Edelstein:
… for sure.

Tony Abate:
Yeah, yeah. But not that everybody listens to their attorney, or us, or whatever. Jon, I cut you off. I’m sorry, you had a-

Jon Lafferty:
No, it’s okay, I just wanted-

Marc Edelstein:
Well the divorce system is an emotional process and purchasing a home really should be just a business transaction.

Tony Abate:
It should be.

Marc Edelstein:
Right.

Tony Abate:
Yeah, yeah.

Jon Lafferty:
Yeah, it’s not.

Tony Abate:
No, it’s not, it’s not-

Marc Edelstein:
I realize that.

Tony Abate:
Yeah, yeah, unfortunately.

Jon Lafferty:
When you have a client that’s going through this, and they go out and start looking, do you let their agent know? Do you ask your client, can I let your agent know that this is what’s happening so that they’re aware?

Marc Edelstein:
I always ask the client for permission to talk to anybody freely about their situation. That’s one of the first things we talk about. Because it’s competitive out there. So if I’ve got a borrower wants to make an offer on a home, and I feel like there’s going to be multiple offers, or I know there’s multiple offers, I want to be able to call that listing agent to talk up my borrower, but I want to be able to have my borrower’s permission to be able to talk them up on their behalf. So it goes the same way with the divorce as well. Get the permission and just explain to them, with this permission, I can help you get that offer accepted, I have the ability to communicate more freely with the rest of the people on your divorce team.

Jon Lafferty:
Yeah, that’s important. That could be the difference between losing an earnest money deposit and being able to hold on to it.

Marc Edelstein:
I would prefer not to issue the pre approval letter until the divorce is final.

Tony Abate:
Yeah, yeah.

Marc Edelstein:
It would be a special circumstance where we do it any different.

Tony Abate:
Yeah, yeah. Yeah, generally when I get to that point of the conversation, where that would have to be revealed in fairness to all parties, buyers kind of tend to back off and not want to have that out there. Especially sometimes they’ve got to hold their hand and say, look, if you can hit your date, then you’ve got to start telling people why. Is this really the kind of thing that you want to have getting into your transaction, as far as why you can’t close? The seller is probably not going to be overly sympathetic and be real quick to return an EMD.

Marc Edelstein:
No.

Tony Abate:
It’s something they didn’t know, and there’s privacy issues surrounding that. So I agree with you, the pre approval needs to happen after that decree is finalized. We can do the numbers, we can tell them what the purchasing power is going to look like.

Marc Edelstein:
Oh, yeah.

Tony Abate:
So when that all happens, they can pull a trigger. But it’s just dangerous territory to get into it prior to that decree.

Marc Edelstein:
Yeah.

Tony Abate:
Yeah, yeah. Yeah, tricky stuff.

Jon Lafferty:
It is. Out of curiosity, if you have a divorce and it’s something that’s not finalized, and let’s say it’s acrimonious, this person does have enough money to qualify to purchase, even though divorce may not be final, and they have their spouse signed a quitclaim deed to this particular property that they’re going to buy. Would you be able to finance it? Or is there still a hold up?

Marc Edelstein:
I think you could finance it, but the way it should be done is you should finance it as an investment property, and put 20% down. Because even though it will be your primary residence at some point in time in the future, it’s not at the time of closing, and I really don’t think you want to try and finance as a primary residence when it’s just not at the time of closing.

Tony Abate:
Yeah, I would agree.

Marc Edelstein:
So purchase it as an investment property, and then divorce becomes final, you move into it, if you want to refinance it and switch it, you certainly can. At that point time you can homestead the property taxes, but financing it as a new primary residence, with an existing primary and a divorce filed within the court system, I think it becomes tough. It becomes easier if all that happens before the divorce is filed, and then you just need to know as the buyer that this is a marital asset, you guys are going to have to figure out what you’re going to do with this thing. And once it’s filed it’s like the curtains come down.

Tony Abate:
Yeah, yeah, yeah. And you know for an underwriting perspective too, if somebody is buying a new primary residence before they sell their old primary residence, the underwriter legitimately asks, “What’s the disposition of that home going to be?”

Marc Edelstein:
Right.

Tony Abate:
And if the answer is, “Well I’m going to get a divorce.” That’s not going to fly-

Marc Edelstein:
That’s not a great answer-

Tony Abate:
Because all the underwriter can legitimately conclude is that person is going to own two properties, and they’re trying to call them both a primary residence. And any more than they can say, I’m going to get a raise, or I’m going to get an inheritance or I’m going to pay off my debt, it just doesn’t fly.

Marc Edelstein:
Especially if you’re trying to eliminate debt from qualifying, when the divorce isn’t final.

Tony Abate:
That’s a good point, yeah.

Jon Lafferty:
From your perspective, it’s just viewed as an investment property. Don’t you have a different requirement for let’s say, a second home financing? Could you call that a second home? And get a better rate-

Marc Edelstein:
Depends on where it is, and what sort of amenities it has-

Tony Abate:
If it happens to be in Traverse City on a lake, I would say yes, but-

Jon Lafferty:
If it happens to be in the middle of Troy?

Tony Abate:
Probably not going to fly. 10 miles from their existing home, yeah, that would-

Jon Lafferty:
That’s my new home-

Tony Abate:
… red flag, as they say.

Marc Edelstein:
Although I did have some clients of mine probably three years ago, whose primary residence was in Dearborn, and they purchased literally a second home in West Bloomfield on a lake, and it was 25 miles from their primary residence, but it met all their criteria of legitimately being a second home.

Tony Abate:
Yeah, yeah, yeah.

Marc Edelstein:
So it’s not always about distance. It can be about amenities, but distance by far is the easiest way to demonstrate that second home.

Tony Abate:
Yeah, but I think in the context of managing through a divorce, that really wouldn’t be it. They would have to bite the bullet and know that down payment requirements are bigger, interest rates are going to be higher, it is what it is. And that’s kind of the cost of doing something in advance, I would say.

Jon Lafferty:
Okay.

Tony Abate:
All right.

Marc Edelstein:
It all sounds good to me.

Tony Abate:
Yeah, yeah. Well, Marc Edelstein, hey, thanks for coming on board. Mark is a colleague of mine at Ross Mortgage, specializes in folks that are wanting to finance, buy, sell homes when their divorces involved. Marc, how can folks reach you if they want to ask questions?

Marc Edelstein:
Ah, several different ways. Online at, thatmortgagebanker.com. So that mortgagebanker.com is probably the best way to get ahold of me. I can throw up my phone number 2-4-8 area code, 3-7-9-6-7-4-9. Or on Facebook, I’m all over there.

Tony Abate:
Absolutely.

Jon Lafferty:
Do they find you by Marc Edelstein, or-

Marc Edelstein:
Yeah, it’s Marc with a c by the way.

Tony Abate:
Marc with a c.

Marc Edelstein:
Marc with a c.

Jon Lafferty:
Good clarification.

Tony Abate:
Thanks again, Marc.

Marc Edelstein:
You’re welcome-

Jon Lafferty:
Yeah, thank you. Thank you for listening to Avoiding Real Estate Turbulence. If you’d be so kind as to subscribe, review and rate, we appreciate it. Please share with your friends, family and coworkers that they too can find us on Facebook and avoidingret.com, where you’ll find our contact information and every episode that we’ve done. You can also find this on Apple podcast, Google podcast and Spotify. Thanks again.

Tony Abate:
Thank you.

Marc Edelstein
(248) 379-6749
thatmortgagebanker.com