Divorce is a time of emotional and financial stress for the
entire family. The first and most important decisions revolve around the
children and custody if applicable. The next most important discussion is how
to divide equity in the family home and whether it will be sold or retained.

First, if neither party wants nor is able to keep the family
home, it should be listed for sale. A realtor can represent both parties and
should be someone experienced in divorce and real estate. The most important
decisions in selling the house is where to set the sales price and how the
equity will be divided. This is something that should be agreed upon in writing
BEFORE the house goes on the market so there is less likely to be disputes once
an offer comes in. It is important for the divorcing couple to decide how they
will divide expenses, repairs or other costs associated with selling the home
before an offer is received. Once the home is sold, the proceeds can be divided
as agreed and both parties can move forward to buy or rent their own home.

If one party wants and is able to keep the home, they can
refinance to remove the other party from the note and deed to the home. The
first step in this process is having the party who wishes to keep the house get
prequalified for the refinance. Prequalification are typically only done in
purchase transactions, but in the case of a divorce, its very important to make
sure the party who awarded the home and is ordered to refinance can actually be
approved before the decree is finalized. There are too many situations where a
refinance is ordered in the decree, but the refinancing party is unable to be
qualified. In this case, the exiting party may not be able to get the equity
they were awarded from the property or be able to get their name removed from
the mortgage liability. Its very important to be prequalified a lender who
specializes in divorce lending such as a Certified Divorce Lending Professional
(CDLP)

If equity is awarded to the exiting party, there are several
ways this can be handled. The most common way attorneys and lenders achieve
this is with a cash out refinance. In this situation, the party who is
refinancing will pull cash out as part of the refinance and distribute it to
the other party and/or keep some money for themselves for debt consolidation or
other purposes. The problem with cash out refinances is in Texas we have strict
rules for equity loans and a higher rate is also associated with these
transactions. If the refinancing party wants/needs to pull extra cash out of
the property in addition to the equity owed to the exiting spouse, the only way
to do this is with a cash out refinance. Keep in mind the refinancing party
must leave 20% equity in the home after the cash is pulled out so this can
limit the amount that can be distributed. If the equity being accessed is ONLY
needed to buy out the exiting party, then a cash out refinance is not
necessary. Instead a regular rate/term refinance can be done and an owelty lien
can be drawn up to dictate exactly how much equity should be paid to the
exiting party.  At closing, that amount
will be paid directly to that party on the final closing statement. The
refinancing party cannot receive any cash back at all or it becomes a cash out refinance.
The benefits to doing a rate/term refinance vs a cash out is the rate is lower,
fees are less, and the refinancing party is only required to keep 5% equity in
the home instead of 20%. Many attorneys and lenders are unaware of this option
so again it is important to work with professionals who specialize in divorce
and real estate.

Creating a “team” of professionals with a family law
attorney, realtor and lender who can work together in a refinance or selling
transaction is extremely helpful. This team can come up with the best options
to help both parties achieve their goals with as little financial and emotional
stress as possible.

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