Why A Do-It-Yourself Divorce Requires Professional Mortgage Advice

A homeowner recently divorced and the divorce was amicable.

There were no divorce attorneys, no bitter squabbles, and no judge's decree.

More importantly, there were no legal battles or expensive litigation.

The split was well-crafted by the two parties and they even drafted their own Child Support agreement based upon a generally-accepted payment schedule from their home state.

The payment was set to be $1,500 monthly until the child reached 18 years of age.

But, the ex-husband thought this wasn't enough. He wanted to be fair to his ex-wife about their jointly-owned home so he decided to pay her what he felt was owed.

In two of the first four months following the divorce, he sent very, very large child support payments to the ex-wife as a "cash out" of sorts. They called it even after that and shared custody of their child.

Now, for anyone who has been through a divorce, this story sounds like a dream.
But there's always something more, isn't there?

Shortly after the divorce, the ex-wife wanted to officially remove the ex-husband from the title and from the mortgage, and wanted to extract a small amount of equity to accomplish three goals:

Pay down credit cards
Set aside retirement money
Establish an emergency fund

But, she's also just found out a horrible truth: she cannot get approved for a home loan because she cannot use her child support income on the mortgage application.

And it's for one of those "are you kidding me?"-type reasons.

Because the ex-husband had not paid the contractual $1,500 of child support each month -- he had been paying much, much more remember -- he did not technically not "pay as agreed".

This is an underwriting no-no.

An mortgage underwriter has no way of knowing whether the ex-husband was front-loading his payments, making a separate agreement, or doing something sinister when he made those excessive cash payments to the ex-wife.

All the underwriter see is that there are two deposits for $1,500 over four months and that is the amount she is supposed to receive every 30 days.

Common sense tells us this is silly but common sense rarely applies when selling loans to Fannie Mae or Freddie Mac. Their guidelines specifically state that child support payments must be supported with proof of payment from the three most recent months.

It's Fannie and Freddie's way of verifying that the paying party is not a deadbeat.

Now, in the case of the ex-wife, it doesn't matter at all that she received 20 times the "normal" child support payments -- she didn't receive was what specified by contract.

With no proof of the $1,500 being transferred, the $1,500 may not be used as a source of income.

It's like what Lt. Daniel Kaffee said: "It doesn't matter what I know, it only matters what I can prove!" and in this case, there's no proof that the child support payments are being paid as agreed.

Looking back, a better way to make payments would have been to document a trail of $1,500 monthly with a cancelled check or wire transfer, and then document any of the "special payments" in the exact same manner.

Without the income, the ex-wife didn't qualify for her home loan and couldn't meet her three objectives. Instead, she'll have to wait 90 days and hope that her credit profile and home's value don't worsen.

"Do-it-yourself" is perfectly acceptable in life, but when it comes to serious legal or financial matters, protect yourself with a final "sign-off" from an experienced professional. And don't be bashful about paying somebody for a little bit of their time.

It's a small price to pay to protect your family and your interest.