Husband Tries to Get a Loan During His Divorce

By Dan Harkey

Real Life Example- #2 of 25

A borrower (husband) is in a divorce proceeding with his soon-to-be ex-wife and is attempting to obtain a loan for his personal use and secure the couple’s owner-occupied residence. The property title is held as joint tenants with both parties. The husband asserts that he and his pending ex have a good rapport and understanding and that she will agree to the loan. However, false assumptions like this contributed to the reasons for the divorce. The wife had no idea and steadfastly refused to allow a lien to be recorded on the home, highlighting the potential risks of such assumptions. Flowers and a simple apology did not work.

The mortgage broker said…

“My client is going through a divorce, and he has assured me that she will cooperate.  She will sign whatever documents are necessary.  The husband told me so.  They are getting along well.” The mortgage broker's skepticism is evident in his following words, "Yeah, everyone gets along with their soon-to-be ex-spouse.” This highlights the potential consequences of the husband's assumption and the importance of legal verification.

The lender responded…

“Yes, that may be true, that the wife may cooperate.  But, before we go through all the work (sometimes called spinning our wheels) to process and fund this loan, we require a written verification from the wife or her attorney that she will cooperate in signing the proper documents for this transaction.

Is there a pending settlement agreement in the divorce proceedings?  Is there a completed proforma settlement agreement where the x-spouse has agreed to quit-claim their interest in the security property as part of the settlement?  Once a petition is filed for dissolving the marriage, further action to sell or refinance community property is typically only possible with a court order.

A court petition to dissolve a marriage imposes a “legally mandated stay,” which requires court approval for any property sale or loan transaction. This “stay” prohibits the parties from encumbering or selling a property without court approval. If a court has not yet approved a property settlement, neither party can take any action, such as financing or selling the mutually owned assets.  A title insurer will also require a court order or court-approved settlement agreement as a condition to provide title insurance coverage, further emphasizing the legal complexities and potential delays in the loan process. This information is crucial for all parties involved in the divorce and loan process.

If a lender makes a loan secured by the property and the documents are signed by only one party, the transaction will be voidable. A lender could end up with an unsecured claim not attached to the real property. This cautionary note is a stark reminder of the potential consequences of a one-sided transaction and the need for both parties' involvement in the loan process.

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Thank You

Dan Harkey

Educator and Private Money Lending Consultant

949 533 8315  dan@danharkey.com

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