It has been widely and wrongly asserted that someone who is getting divorced in Minnesota cannot purchase a home prior to finalizing a divorce decree and at the same time prevent their soon to be ex-spouse from being entitled to marital property rights in the newly purchased home. This used to be a serious problem that made the already long and painful process of getting divorced in Minnesota even longer and more painful yet. In 2004, the Minnesota legislature put this recurring issue to rest.
In 2004, the MN legislature enacted MS 507.03 PURHCASE-MONEY MORTGAGE; NONJOINDER OF SPOUSE. Amongst other things, it established the following:
“When a married individual purchases real property during marriage and mortgages the real property to secure the payment of the purchase price or any portion of it, the other spouse shall not be entitled to any inchoate, contingent, or marital property right or interest in the real property as against the mortgagee or those claiming under the mortgagee even though the other spouse did not join in the mortgage. A statement in the mortgage to the effect that the mortgage is a purchase money mortgage constitutes prima facie evidence of that fact.”
So this takes care of the ownership interest issue but despite the fact that this law went into effect so long ago, the question still routinely arises in underwriting.
Laws concerning ownership interest in real property vary state by state. Often times, underwriting for mortgages is centralized in one area for multiple states. These underwriters might assume, albeit incorrectly, that a spouse must go on title for the new purchase. They might assume, albeit incorrectly, that the spouse might need to sign the mortgage note. They might assume, albeit incorrectly, that the spouse might need to sign the mortgage instrument. The spouse only needs to sign the Truth in Lending disclosure according to the MDIA amendments to the Truth in Lending Act from 2009. What’s important is working with a loan officer that knows how to navigate wrongly applied guidelines should they be applied by underwriting or even title companies.
The financing hurdles associated with buying a home prior to the execution of a divorce decree exist. Firstly, the purchaser must qualify for both mortgage payments and all other liabilities reporting to their credit report. All combined, these must meet the Debt to Income Ratio requirements of the loan. This must be so in order to satisfy FHA’s “buy and bail” rule and a similar guideline held by Fannie Mae (Fannie Mae’s Seller’s Guide B3-6-06, Qualifying Impact of Other Real Estate Owned (10/30/2009)). This guideline alone prevents a lot of purchases from happening prior to finalization of a divorce decree. The second hurdle is isolating the purchasing spouse’s income from the non-purchasing spouse’s income. If all income from the purchasing spouse is W2’d income, this is easy to do. If there is a mixture of self-employed income on the previous years’ tax returns (for instance both parties are self-employed or have a jointly owned business), it can be a rat’s nest to detangle and will take a skilled loan officer.
These transactions are not without their challenges; however, in Minnesota they can be done. Often times, they can represent the first truly big decision made independently for some time and that can be quite a liberating feeling!
Charles Dailey – Branch Manager, Loan Officer, Certified Military Housing Specialist – CA DOC, MN DOC & WI DFI
The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.
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