Buying and Selling Property in a Divorce
Unfortunately, the rate of divorce is about 50% these days. If you haven’t already encountered it, you’re eventually going to have a client that is trying to purchase a property or sell a piece of property while they’re in the midst of a divorce and it’s not yet finalized. We’re going to talk about each of these separately.
First of all, if you represent a client and they’re in the middle of a divorce or near the end of a divorce or, really, at any stage of the divorce before it is finalized, and they’re trying to buy a house that they’re going to live in as their homestead, unfortunately they have to have their soon-to-be-ex spouse sign the mortgage. This obviously causes immediate alarm bells. We want you to understand why that happens and what the concerns are when it does.
Under Florida law, you have a right of homestead, which means a right to live in the house that own with your spouse or your spouse owns alone. For that reason, if you’re married to someone, even if you’re on the way to a divorce, until that divorce is officially finalized, they have a right to live in the property that you own.
Now, this can be handled over the course of a divorce by agreements that you reach with the other party about who lives where, and all of that could advance just fine during the divorce and be mutually agreed to. However, if one of those parties is looking for a new home to live in and that home is going to be their homestead, their spouse is going to have to sign the mortgage. Note: not the note, just the mortgage. This is because, as we mentioned before, a spouse has the right to live wherever their not-yet-ex-spouse lives and if for some reason the bank has to take the home back, they have to have the spouse’s consent. They get that consent by having them sign the mortgage.
One thing that you can let your buyer’s know in this scenario is that nothing about signing the mortgage puts anybody on the hook for the note for the obligation. So, if your buyer is buying a new home and the divorce is not yet final, the lender requires that his spouse sign the mortgage to protect their investment, it does not mean the spouse is responsible for the debt. It’s still the responsibility of the buyer alone. When they eventually get divorced, the fact of the mortgage doesn’t mean anything, but if you think about how many couples actually reconcile before a divorce is finalized, you can understand why banks are so particular about this issue. If the couple were to reconcile and continue to live in that house together and it was officially listed as the wife’s homestead, the bank wouldn’t be able to take the house back unless she had signed the mortgage. Well, at least not without great difficulty. Ultimately, this is going to be a lender requirement in every situation and your client will not be able to get around it.
Prepare your buyers ahead of time and make sure they know that if their divorce is not finalized, they’re going to have to ask their soon-to-be-ex-spouse to sign the mortgage. They need to be honest about their current, official marital status even if they’re separated.
Now, the other side of this coin is when a client is trying to sell property in the midst of a divorce. Frequently, when a couple separates and is working toward finalizing their divorce, part of the process involves disposing of property that they own together. During that time, any title that they are on together, they’re going to have to continue to cooperate to reach their common goal. Obviously, that’s not always an easy thing to ask when a divorce is messy or complicated. Getting people to work together to get deeds signed is not always as simple as it sounds.
If you’re representing a person that is still married but on the way to divorce, again, prepare them ahead of time and let them know that unless they have a court order that says otherwise, any property that they own together, they’re going to have to sign off on together. They just need to go ahead and wrap their mind around that.
Additionally, you also need to let the title company know what is going on so that they understand they need to be in contact with both spouses and, sometimes, their individual attorneys. If a property is being sold pursuant to an agreement between the parties, the attorneys also have to sign off on it.
Representing a buyer or seller that is going through the divorce process is like a lot of your practice – you just need to know this information going into the first appointment. As soon as you find out that these are issues, address them immediately so your customer can be prepared. Bottom line, don’t be alarmed. We close properties all the time for clients that are in the midst of a divorce.
If you have any questions about this episode or anything pertaining to your closing, we can be reached at: 352-394-7408.