Dividing property not as simple as taking one name off the title
When couples separate, brokers can play an important role in helping clients to sort out mortgage and refinancing issues, says Stanford Financial’s head broker, Steven Beach.
According to Beach (pictured above left), who leads Stanford Financial’s West Brisbane-based mortgage brokerage, the main issue his team encounter with lending in a separation is that the title of the property will generally be held jointly, and you can’t just take one name off the title without refinancing the mortgage.
“When these clients speak to us about the options that are available, we often discuss their two main solutions; either refinancing just in one name to have the other party removed from both the title of the property and the loan or selling and using the proceeds of the property sale to calculate their new maximum borrowing capacity,” said Beach.
Beach said Stanford Financial often worked with its sister company Stanford Legal to assist clients with any overlapping services, in areas such as property law, family law, succession law and commercial Law.
Property settlement vital for resolution
According to Stanford Legal head family lawyer Emario Welgampola (pictured above right), who has been practising family law for more than 20 years, one of the consequences of separation is that it ends the joint use of property, and a division of assets is needed, by way of a property settlement.
“There is a need to divide assets, liabilities, and resources the parties may have jointly owned,” Welgampola said.
“What each party gets at property settlement is based on the current market value of the property available for distribution, the contributions that each party made to the joint property, each party’s future needs and other factors that make the settlement a fair and equitable distribution.
“In the case of real estate owned by the parties, one of two things can happen. Either the property is sold, and the net proceeds divided between the parties, or one party buys the other’s interest in it.
“In doing this the buyer has to refinance an existing mortgage into their sole name and pay the seller out.
“The buyer’s capacity to raise funds becomes important here, as does the value of the property which will be security for the debt.
“The transaction is completed when the existing mortgage is discharged and a new mortgage is registered, with the buyer as the sole mortgagor, the seller released and discharged, and the property transferred from joint names to the single name of the buyer.”
Lenders can be flexible providing debt can be serviced
According to Beach, lenders can be very flexible and lend as much as up to 95% of the value of the property, provided the customer has the capacity to service the debt.
However, Beach flagged that the separation may change the client’s household income significantly.
“Whereas the original loan approval may have had dual incomes, the client is often relying solely on their own to pass affordability for the ‘buy-out’.
“In the event the clients are selling the property, they may want to call the existing lender directly to make alternative repayment arrangements if there is no agreement with the former partner to maintain the current loan.
“In these circumstances where the client is separating, they may also be classed as a single parent.
“This could potentially lead to entitlement to the Family Home Guarantee Scheme, which means with as little as 2% deposit they may be able to avoid LMI and purchase a new home for their family.
“Of course, affordability is generally the major obstacle here, so a lot of our clients will look at using any excess funds above the 2% to payout or consolidate debt to help with affordability.”
According to the experts, there are a number of issues mortgage brokers should be aware of when it comes to buying out an ex-partner.
Transfer duty another issue for consideration
Welgampola said it’s very important to remember that the transfer of real property between parties would usually attract transfer duty.
However, he said if the transfer is done pursuant to a Consent Order from the Family Law Court or a valid Binding Financial Agreement (BFA) executed between the parties, there is a full exemption from transfer duty.
“Thousands of dollars are saved by effecting a transfer in this way,” Welgampola said.
“Apart from that, when a consent order or a BFA is in place, going forward, the parties have financial closure and security, protection for the assets they each retain and finality to their financial relationship.”
Beach said when emotions were involved, things were rarely straight forward and acting with empathy could be critical as the client went through a turbulent period of their life.
“It is very important to consider any conflict of interest you might have when you did the original loan for the couple and now, they both want you to assist with their new lending requirements (buying the other out or purchasing a new home),” Beach said.
“It is always best to speak to your licensee about this to make sure you are being fully compliant. Just as importantly, although it may sound obvious, managing the emotions carefully in these situations is essential.”
