Exercise caution when buying new home after separating
By AdvocateDaily.com Staff
This is Part 1 in a three-part series on the intersection of family law and real estate law. In this instalment, St.
While buying a new home might seem like a good idea after separating from your spouse, it might actually be a big mistake, St. Catharines family lawyer Sharon Silbert tells AdvocateDaily.com.
In an overheated market where it’s become normal to waive conditions, it can end up being very risky to buy while going through a separation, says Silbert, principal of Sharon B. Silbert Professional Corporation.
“Be very cautious when it comes to buying real estate when you’re going through a separation,” warns Silbert. “You want to be 100 per cent sure you’re able to fulfil your obligations under an agreement of purchase and sale before you sign that contract.”
Silbert dealt with a situation recently in which a woman found a nice home she figured she could afford following a marital split.
She signed a legally binding contract to purchase the home and waived the financing condition to make her offer more attractive. The bid was accepted, but the woman discovered she was unable to secure financing because she didn’t have a separation agreement in place.
Silbert says the woman found herself in the unenviable position of rushing through the process of negotiating a financial settlement with her ex so she could get the financing she needed to close the deal.
“Having that closing date hanging over her head really changed the negotiating dynamics. She lost a great deal of bargaining power because her former spouse knew that if she didn’t agree to the terms he proposed, she wouldn’t be able to close on the house, and she could be sued for breach of contract,” says Silbert.
The woman found herself having to make concessions that wouldn’t otherwise have been necessary, says Silbert, just so she could complete the real estate deal.
Since a separation agreement spells out the parties’ financial obligations with respect to equalization of property as well as ongoing support obligations, the true financial health of the individual doesn’t become clear until after those negotiations are complete and a legal separation agreement is in place. This is why most lenders will not approve a mortgage without a final agreement.
It’s just one of the demands a financial institution insists on prior to final approval of a mortgage. Pre-approval for a loan, she adds, is not the same thing, and on its own is not enough.
“The moral of the story is don’t buy real estate until you have either a separation agreement in place or you have a mortgage commitment from a lender that explicitly states that a separation agreement is not required,” Silbert says. “The latter is extremely unlikely, so be wary of financial institutions or mortgage brokers who say you’re pre-approved and should have no trouble finalizing your mortgage as they may not understand the family law implications.
“Be really cautious when it comes to real estate. If you’re going through a separation, make sure the issues are truly resolved before making other major financial commitments.”
Stay tuned for Part 2 in this series where St. Catharines family lawyer Sharon Silbert explores the subject of accessing proceeds from the sale of your home during a marital split.