Rhode Island Divorce Mediation - Avoid Snag in Mortgage Refinance

During a divorce, one party may buy out the other spouse’s interest in their jointly owned real estate.   One spouse applies for the mortgage refinance, requesting cash money coming out in order to pay the other spouse for his/her share of the equity.  In a divorce, this is considered “extenuating circumstances” and it’s not considered a “cash-out” refinance that can mean higher interest rates and require stricter loan – to – value requirements.  At the time of the refinance, the “bought-out” spouse signs a Quit Claim deed to the party retaining the home (or other parcel of real estate). 

Often, this may be agreed upon and started well before the divorce is scheduled for court.  In many situations, parties want to accomplish this early on, allowing the “bought out” spouse to receive his or her equity from the refinance and purchase a new residence, allowing them to physically separate and begin a new proposed parenting plan.   

Some people worry about doing this before the divorce is final.  Even after the transaction and until the divorce is heard in court, the real estate remains a “marital asset” in the event that the parties cannot reach a final settlement.   The same applies to the equity given the other spouse, who will need to account for the use of the money.  If the equity is used to buy a new residence, that also would be considered a marital asset.  Of course, when the divorce is put through, each party would presumably retain his/her residence free from any claim of the other.

One obstacle to the refinance that has developed over the past stems from lenders.  According to Arlene Philla, a Certified Mortgage Planner in Providence, Rhode Island, lenders request a copy of the parties’ signed Settlement Agreement or Court Order.  Ms. Philla says that instead of a Court Order or a complete Marital Settlement Agreement, some lenders will accept a Memorandum of Understanding regarding the terms agreed to by the parties.  You need to work with a mortgage specialist like Ms. Philla who will help you find the right lender.

 In a Rhode Island divorce, a person may need to wait three months to a year before receiving any court order that would permit the refinance.  Using divorce mediation, this time obstacle can be shortened to weeks if the parties diligently work on moving their matter along.  Mediation is not subject to the court’s scheduling and continuance.  You control the scheduling of the mediation.  Using divorce mediation puts people “a head of the game” when it comes to refinancing their mortgage.