The Gray Divorce Podcast: Episode 15 Divorce Mortgage Planning with Jody Bruns

Announcement: [00:00:00] Welcome to The Gray Divorce Podcast, hosted by divorce financial analyst and retirement planning counselor Andrew Hatherley. Join Andrew and guest experts as they help late-life divorcees build the financial and mental foundation for a meaningful future. There is life after divorce. Now on to the show.

Andrew Hatherley: Welcome to episode 15 of The Gray Divorce Podcast. I'm very happy to have with me today, Jodi Bruns. Jodi is a real leader in the field of divorce financial planning, specifically divorce mortgage planning. Jodi is the president and founder of the Divorce Lending Association and has established an industry certification program for mortgage professionals working with divorcing clients.

That's the CDLP designation, which stands for Certified Divorce [00:01:00] Lending Professional. Jodi is also the author of the book, A House Divided: The Clash Between Divorce Real Estate and Mortgage Financing. Through her personal journey of divorce involving real estate, Jodi knows firsthand the emotions divorce carries.

She has coached and trained thousands, I think about 3000 mortgage and real estate professionals on how to work with divorcing homeowners. She also works with attorneys and divorce financial analysts such as myself, with the ultimate goal of helping to bring about a more successful divorce when mortgage financing and real estate property are involved.

Jodi, welcome to the Gray Divorce Podcast. 

Jody Bruns: Thank you very much, Andrew, for having me. 

Andrew Hatherley: My pleasure. First of all, I'd like to say thank you very much for the work you're [00:02:00] doing, educating professionals in the divorce field about the importance of divorce mortgage planning. I know I've learned an awful lot from you and your CDLP students, whether it's in, webinars or your newsletters or podcast appearances and I recently appeared on your podcast, so thank you very much for that.

So Jodi, let's begin with the basics. A lot of our audience probably doesn't know what divorce mortgage planning is, so maybe, let's start at the beginning. Could you please explain the concept? 

Jody Bruns: Yeah, absolutely. So obviously to me, it makes perfect sense. But, speaking to other professionals, I always find like the easiest way to explain it is, we all know what estate planning is, putting your affairs into [00:03:00] order, et cetera, upon death, and then you have financial planning.

Putting all your financial decisions, your future, your retirement, everything into place. So we all understand those common concepts. And then you throw into the mix divorce financial planning, which obviously is throwing divorce into the mix. Well, divorce mortgage planning is literally understanding what the divorcing spouse's end game is, if you will They know exactly where they want to be with either refinancing the marital home or investment properties or selling and then buying. But they don't understand what a wrench basically divorce can throw into the normal divorce process.

And so divorce mortgage planning is literally taking that mortgage planner who wants to be able to [00:04:00] structure you to be able to obtain mortgage approval, but then also having all of that background knowledge of divorce. Literally mixing the two because divorce literally changes everybody's traditional experience of obtaining mortgage financing.

So divorce mortgage planning.  we want to be able to work with your divorce team and the divorcing homeowners during the process, not after, right? So that we can make sure that we're removing those hurdles and making sure everyone has proper expectations. We're setting up strategies that we can actually execute.

Andrew Hatherley: It's so important because of what the lenders need from an individual. Is often just ignored, or just blissfully ignorant. Then, the attorney even  [00:05:00] the financial planner, the CDFA are unaware. It's a specialist such as the CDLP who can bring the requirements of the lender for the end game, like you said, the end goals, and help avoid or incorporate into the marital settlement agreement language that will ultimately help the parties towards their real estate goals, whether it's refinancing or buying and buying a new property down the road. Right? 

Jody Bruns: Yeah.  it's literally no fault to anyone who's involved. You know that saying you don't know what you don't know, right?

Well, divorced attorneys are not mortgage professionals. Financial planners are not real estate professionals. It's this vicious circle. And so it's just really important that you have a strong team of professionals who understand their craft, but they also understand [00:06:00] the implications of divorce, so you can work together for a more positive solution for the divorcing homeowners.

Andrew Hatherley: So can you give us a couple of examples? A divorce mortgage planner, let's call them CDLP, Certified Divorce Lending Professional who gets involved in the process early on. Where are mistakes typically made and how can the involvement of a CDLP help avoid those mistakes? 

Jody Bruns: Oh my gosh, there are so many.

Okay. Some of the big, some of the key ones that I would say one of the most common issues we have is with support payments whether it's alimony, spousal support, maintenance, or child support, and they're literally the verbiage or the words used can kill the opportunity to even utilize that payment income for [00:07:00] qualifying purposes.

And it can come down to the actual term used. As mortgage planners, we can do things differently with alimony than we can sposal support and I would say how it's paid is huge. You and I have talked many times. There is a term that we coined called the 636.  Pretty well known.

But you have to show six months' proof of receipt of such payment before you can use it, and then you also have to show three years of continuance.  that's pretty common across the board. Where it gets kind of tricky is how it's paid.  

We have several times where you have both spouses, they come to an agreement that, if the order says, I'm just throwing out numbers here, $3,000 a month in alimony, and then after [00:08:00] the settlement is finalized and the husband and wife, they come to an agreement that says, well, it's much easier for me if I pay you a thousand dollars by the fifth of the month and then the remaining $2,000 at the end of the month, or when I get paid my second check because maybe my second check has commission included, et cetera. I'm like, okay, well $3000 is $3000. Well, to us, that causes a problem because it wasn't paid as ordered. So we don't meet our stability and consistency payments.

So those kind of things, I mean, I get it.  They're trying to be amicable. They're trying to make it work for everybody. Those little changes and deviations from the actual order cause problems and she's not going to be able to use it to qualify for a mortgage.

Andrew Hatherley: [00:09:00] And you mentioned 636. If it's only 630, that's going to be an issue as well, right? 

Jody Bruns: Oh, yeah. So anytime that we are using any type of support, income, child support, maintenance, alimony, et cetera, we have to be able to not only show your typical six months' proof of receipt, but we also have to show 36 months of continuity once the loan has closed.

So if, for example, they were only given support for three years, 36 months, by the time we show six months' proof of receipt, we no longer have three years of continuity. So we can't use that income at all, right?

Andrew Hatherley: I mean, The way I look at it is even before I went through my unfortunate gray divorce, well, I look at it fortunate in retrospect, but I had [00:10:00] experience dealing with trying to buy a house with quite a bit of money in the bank, but very little income because I was moving from one side of the country.

I was moving to start a new job in a new town, but bankers and lenders, they don't care. They're not the most flexible people in the world. 

Jody Bruns: No, we're not. 

Andrew Hatherley: And so I had money, but it didn't matter. We need to see that in that income stream.
And so, I guess, the key message to divorce financial planners such as myself and divorce attorneys when there's an end game with respect to refinancing real estate, is to keep this consistency. What was the term that you used? Something in consistency. 

Jody Bruns: Oh, we have to show stability and consistency.

Andrew Hatherley: Stability and consistency. That's [00:11:00] what needs to be shown. Yep. The other thing that I've seen pop up is the issue of when one party's staying in the marital house, but both parties are on the mortgage. So let's say the wife stays in the house because typically women tend to have more of an emotional attachment to the house.

The husbands have an emotional attachment to their retirement plans. They're precious, as I call them, a little guy from Lord of the Rings. And so let's say the husband is paying spousal or, once again, it's a stereotypical, but perhaps more common situation. But he doesn't want to pay. He wants to pay the mortgage directly to Wells Fargo or Bank of America or whoever holds the mortgage rather than give it to the ex-wife for, I mean, they're not on great terms.

He wants to protect his credit. That's a reasonable [00:12:00] argument. From the payer's point of view, don't you think, Jodi? But there are implications for the wife if she needs to refinance. 

Jody Bruns: It's completely defensible for him. If my name is on a mortgage and one mortgage late can drop your credit score by over a hundred points and it's going to stay on your mortgage credit report for seven years it can be very detrimental.

So I see it all the time well, if my name's on the mortgage, I want to make sure it's paid directly because it can have a crazy negative impact on me. And until the home is either sold or refinanced, I will pay the mortgage directly and then deduct that amount from my monthly support obligation.

I see it all the time, but what happens [00:13:00] there is if the husband in this example, wants the refinance done sooner than later. Then it's going to create a very vicious circle. Because you cannot net out support. So easy math again for me. If support income or his payment is $6,000 and the mortgage is just $3,000, he pays Wells Fargo the $3,000 and then pays her the net difference of $3,000.

They think it's fair. What they don't realize is they totally wiped off her ability to qualify for a mortgage if she needed that full $6,000 to qualify because she never receives the $6,000. It's a vicious circle, and again, it goes back to setting those proper expectations.

Andrew Hatherley: Yeah. And so, when you say, [00:14:00] setting the expectations. That's why it's important that a CDLP be involved earlier in the process rather than later so that we can avoid these mistakes. Every situation's going to be specific and worked out differently, but in this case, the goal is refinancing, and the person staying in the house needs to show that income to the lender.

It's important that the CDLP be involved fairly early on in the process. Now I can hear the waves across the fruited plain saying, “Oh great, now I need another person in the divorce case. I've already got an attorney. She's got this guy Andrew, who's divorce financial planner, and he's gotta get paid.

And the CDLP, now you're saying, I need a mortgage person and they're going to get paid.” What's your answer to that? 

Jody Bruns: Well [00:15:00] actually, you’ll like this answer, Andrew. So, a CDLP cannot charge a consulting fee during the divorce process. We are licensed originators, so we get paid by our employer when we close a loan.
So during the entire divorce process, you can work with a CDLP. You can ask them questions, run scenarios, have them as a major player on your divorce team, and not pay them a penny. You're going to ask me why, so I'm just going to jump ahead and tell you.

Andrew Hatherley: They don't believe it. It sounds too good to be true.

Jody Bruns: It's actually an ECO violation. So ECO is the equal credit opportunity act and marital status is a protected class. So we, in the lending industry, have different types of legalities, et cetera, that we have to [00:16:00] abide by. And one of them is called disparate treatment, and that means that we cannot treat one borrower differently from another based on a protected class.

So if we charge a divorcing client a consulting fee, and we don't charge a first-time home buyer a consulting fee we could be guilty of disparate treatment because we treated that marital status-protected class differently. So it doesn't cost anything for you to work with us during the process. We hope that we provide enough value to you during the divorce process that you will trust us to work with us when it is time to refinance or purchase a new home after the divorce is final.

Andrew Hatherley: Okay, cool. I should ask this question now before I forget. How does an individual in a divorce, where a refinance or purchase of a new home is going to be part of the end [00:17:00] game, how do they find a Certified Divorce Lending Professional such as yourself? 

Jody Bruns: So they can go to our website, DivorceLendingAssociation.com.

In the upper right-hand corner, is the easiest place. It says “Find a CDLP”. You can search by zip code, town, or anything that suits your fancy. 

Andrew Hatherley: Okay, terrific. So I would be grossly, negligent if I didn't ask you any questions about senior divorce. Gray divorce is the people divorcing over the agent of 50 specifically, but before that, I just want to ask.
I know the answer. There are going to be lots of other issues we haven't touched on with respect to pitfalls people should be aware of in the divorce mortgage lending process. Perhaps you just give us one or two [00:18:00] just so people are aware of even more things that a CDLP can help remedy potentially.

Jody Bruns: So I would say my biggest thing to put out there is don't assume that just because you qualified for a mortgage in the past, it's going to be the same. I think I said that at the very beginning. Divorce throws a wrench into it. So don't assume. The other thing is to reach out.

Maybe your attorney, your financial planner, already works with a CDLP that they can refer you to, or feel free to reach out to one directly. They can provide you with a ton of insight. What is your endgame? What are your expectations? Are you going to be receiving monthly support?

Are you going to be getting a lump sum payment in lieu of support? Because, [00:19:00] as you said earlier, you may have little income and a big bank account that makes does not help you on the mortgage side so literally reaching out, and utilizing a CDLP to put a plan into place are my biggest two pieces of advice there.

Don't assume it's easy and don't overlook the power and direct impact that a CDLP can have. 

Andrew Hatherley: Terrific. Good advice, Jody. So this is the Gray Divorce Podcast. What are some key distinctions when working with older divorcing couples in the divorce mortgage planning scenario?

Jody Bruns: So I would say their biggest challenge is they're usually heavy on the equity and very light on the income. [00:20:00] Obviously the majority of them might even be on a strict income and they're not working anymore. Maybe they're working part-time, they're in an entirely different stage of life than your normal, everyday working divorcees.

So we really have to be cognizant of how can we put them in a position to stay in their home.  They may have bought their home long ago when prices were down and we all know what the current housing industry is like now, let alone the mortgage interest rate. So we just really have to work as a team again with their financial planners, et cetera, to see how we can create income or what can we do with that equity to help them stay in the home yet help the other spouse move on to obtain their own housing.

There's [00:21:00] a whole different set of circumstances there for the gray divorcees. 

Andrew Hatherley:  I've seen a lot on social media and advertisements and it's a potential opportunity, but it needs to be looked at with open eyes and that is reverse mortgages. What is it now that you're 62? If you're 62 years of age? And with substantial equity in your home, you're essentially a candidate, a potential candidate. As a financial advisor who's been working for more years than I care to mention in this work, I can't help but tell you that my antenna tends to go up a little bit when I hear about reverse mortgages, and I don't know whether it's so much the product, or the way they're sold and the fees associated with them. Could you perhaps give us an [00:22:00] update on the use of this product with senior divorcing or seniors over 62 divorcing homeowners? 

Jody Bruns: Yeah, so there's been some major overhauls in the last several years on the reverse mortgage as a whole.

And I would say that those overhauls have been focused on consumer protection, and you probably were around with reverse mortgages when they really started coming out, same as I did, and there were none of those protections. What I think the biggest protection is, and that it's focused on, is protecting that equity in the home.

It used to be that if you qualified for a reverse mortgage, you could immediately get out the maximum amount of equity you were approved for, and then all of a sudden that equity spent [00:23:00] and these divorcing seniors not only have no money in the bank, they now have no equity in the home. So there's been some changes to that to where you're limited to a certain amount of equity that you can take out in your first year to cover all of your mandatory obligations, plus a little extra cash coming in, and then the remainder of the equity that you're approved for. It gets sent out in the years following, depending on how you set it up.

So there are a lot of protections in there. I will say too, that I would feel remiss if I didn't say this. The biggest myth, if you will, for reverse mortgages is that once you owe as much as your home is worth, the bank will never ever take your house.

When you no longer live there, [00:24:00] then the mortgage has to be paid off either by selling it or refinancing it to a more conventional type of loan. Or if you die, then the house has to be sold or the mortgage refinances because then the reverse mortgage will become due un pay.

Andrew Hatherley: So, I'm thinking of some scenarios, and I always have to play the devil's advocate here. I mean if you wanted to leave the home to your heirs, I wouldn't say it's a particularly good idea. Or if you plan to move anytime in the near future, probably not a great idea, when would you say it really works well, or maybe,  like a case study or an example of when it might be a good situation? 

Jody Bruns: [00:25:00] So let's talk divorce. If you have a divorcing couple in their seventies, for example, they have their house paid off, if not almost paid off, and then all of a sudden they're facing a divorce and they're on a fixed income.

Well the one spouse leaving, they want their equity out of the house, and the spouse who doesn't want to leave is like, "Well, this is where we raised our children. I don't want to leave. I can't afford to buy a house". That situation may be the perfect reason to look into a reverse mortgage because not only can the spouse staying in the home obtain a reverse mortgage.

She could then get the money out of the house to give her spouse their equity share, and then she would never have a mortgage payment ever in her life. She [00:26:00] would definitely have to make the insurance, the mortgage payments, et cetera. But then the other spouse could then take the equity that they were given from the reverse mortgage.

They can then use that to do a forward reverse mortgage where they put the money as a down payment. They then qualify for a reverse mortgage as a purchase, and then neither spouse has a mortgage payment that they have to worry about. So that's almost like the perfect scenario in a divorce where a reverse mortgage benefits both spouses.

Andrew Hatherley: Yeah, no, that really sounds like a sweet spot for when it works really well. I would think also, you mentioned that perhaps the couple's been in a house for a long time and maybe they want to downsize. So you could have a scenario where they sell the house and then they both use the proceeds as [00:27:00] down payments and then do that forward.

I'm sorry, what? What's it called again?

Jody Bruns: It's a forward reverse mortgage. So, I'll throw a curve ball at you.

Andrew Hatherley: Oh no, don't do that. I only take fastballs.

Jody Bruns: No, this is a good one. This is a good one. Especially for a financial planner. Let's say that they do want to downsize. So they sell the marital residence.

They both take their share of the equity. They use that as a down payment. They use a forward reverse mortgage. They each purchase a fourplex. They have to live in one unit as their primary residence, right?

Andrew Hatherley:  Yes. That's key. Because you have to be living there, right?

Jody Bruns: Yeah. So they're each living in one of their own units.

They don't have a mortgage payment because they did a reverse mortgage, yet they are receiving rental income from the other three units.

Andrew Hatherley: Ooh.

Jody Bruns:  I told you you'd like that.

Andrew Hatherley:  No, I do like that. I do like that. Although it brings up a period of my life when me and my ex were investing [00:28:00] in real estate and we didn't lose a dime on any of the investment, on any of the rental properties we bought.

So yeah, it's a very intriguing idea. I wouldn't necessarily do a fourplex. I think a duplex is more than enough.

Jody Bruns: Yeah, well I was going big or go home, you know? The max, you could qualify for you could use it on a four-unit property.

Andrew Hatherley: That's a fascinating idea. Very creative approach and an example of the added value that a CDLP can add to the divorce, mortgage planning, and financial planning process.

Terrific. Well, we've scratched the surface of all the interesting things that could be discussed in the divorce mortgage planning world. But I think we've certainly whetted the appetite of our audience to find out more and potentially involve a divorce lending [00:29:00] professional in the process, or recommend that their friends do if they're going through divorce.

Jodi, thank you very much. Once again, if anybody wants to get in touch with you or find a Certified Divorce Lending Professional, the website is 

Jody Bruns: DivorceLendingAssociation.com. 

Andrew Hatherley: Terrific, Jodi, thank you very much for being a guest today. 

Jody Bruns: Thank you, Andrew. I enjoyed it. 

Announcement: Thanks so much for tuning into this episode of The Gray Divorce Podcast.
To learn more or get in contact with your host, you can visit Andrew's website at Transcendretirement.net. Also, please feel free to rate, subscribe and leave a  review wherever you listen to your podcasts. That helps others find the show, and we greatly appreciate it. Thanks again for listening, and we'll catch you in the next episode.

property. [00:30:00] Information provided is educational only and should not be construed as legal or tax advice. Each situation is unique and should be discussed with your tax or legal advisor prior to implementation. Andrew Hatherley is not an attorney and does not provide legal advice. Information provided is financial in nature.

Advisory services offered through Hatherly Capital Management, LLC. Divorce Financial Analysis Services offered through Wiser Divorce Solutions and affiliated company.