He wants to buy me out

[billiechic]

He wants to keep the house and buy me out of the mortgage. So I told him to get the details and we can talk. This is the breakdown he got from the bank:
6500 in real estate fees
6000 penalty for breaking the mortgage
2000 for lawyers fees
then on the other side of the page it says the amount of mortgage we owe then 95% and another 1000 for lawyers fees.

This sounds unreal to me! The house is valued at at least 20,000 more than our mortgage but after all the "fees" it only comes out to 4300, so 2150 for me!! I don't see why we would have to pay any real estate fees if he is buying me out. If he is signing a new mortgage with the same bank, at a higher percentage than he could get elsewhere, why would they charge him a penalty still. I talked to my brother in law, when he did this with his ex he said they just paid a lawyer to draw up a deed transfer and that was it.

Am I (and my ex) being taken advantage of? I know it's not him, he has no idea what to expect as I was the one who took care of these things. Can anyone share with me what their process was?

THANKS! I was counting on at least 5000 to pay off my student loans. I can't get my own place until I do.

[representingself]

There are NO "real estate fees" unless you are selling the property.

"Real estate fees" are the commissions paid to the Realtor for their services for listing and selling the home.

You may be charged a 'brokerage fee', if you are using a mortgage broker to secure you a new mortage, (but that's usually paid for by the Lender, and usually around $1200).

If he is renewing with the same mortgage company, they may charge you an interest adjustment/penalty. You can call yourself to find out for sure.

Usually, IF there is a penalty, it is either three months worth of morgage payments, or a lump sum adjustment for the amount of interest you would have paid over the remainder of the mortgage contract, whichever is more.
It depends on how many years/months you have left of your contract.

Interest rates are VERY low right now, so if you happened to sign in 3 years ago a 6%, you might be looking at a hefty penalty.

Lawyers fees for securing a new mortgage contract are usually paid for by the bank, as they have their own legal department, (especially true is you are staying with the same bank).

If you have to hire an independent Lawyer, the fees are usually $500 to $700 at the MOST, (depending on your location).

Any land taxes have to be paid up in full!!!

Before you sign or agree to anything, have an independent Home Appraisal service come in and do a comprehensive value assessment, ($300).

Then have a local Realtor do a Market Value assessment, (FREE).

This will give you a clear picture of what the property is actually worth! You could be pleasantly surprised!

If you ex can re-mortgage with the same financial institution, it can save you a TON of cash!

Also, check your employee benefits. Often Employer and/or Union benefit packages have some coverage for legal fees for these types of minor transactions.

[Linjohn]

billiechic:

If your ex wants to buy you out, did you have the house appraised? Did you both complete Financial Statements to determine if an equalization payment is owing by either party and, if so, how much?

The buyout price of the matrimonial home is arrived at by taking its appraised value (and I would also recommend a professional home appraiser over a real estate agent), minus the outstanding mortgage. Then a disposition cost is normally deducted (the rate is lower than the regular real estate commission) to arrive at the the net property value. Each party is entitled to half of that value. If your ex owes you an equalization payment, that amount is added to your share. If you owe your ex an equalization payment, that amount is deducted from your share.

Your ex will need the services of a real estate attorney to look after the title transfer, discharge of your current mortgage, refinancing of his new mortgage, etc., and any fees involved should be his responsibility, including the interest penalty for early discharge of your existing mortgage. You will probably want to consult a real estate attorney yourself to counsel you before signing the transfer papers.

Linda

[wellwell]

Can somebody please clarify what this "disposition cost" is, whether it's real and why it's being called a real estate fee? It does not seem to make sense for the person being bought out to have to pay this fee if the house is being transferred to the other person without a real estate agent.

In fact, while both parties seemingly pay for this fee, the one being bought out is the only one with a net loss as that fee (half of the 5% supposed real estate commission) comes directly out of the buy out payment. The party doing the buy out, on the other hand, technically pays his share of the fee but also sees his required buy out payment reduced by the same amount. The person doing the buy-out is therefore cash neutral with regards to this fee, while the person being bought out is OUT of 2.5% of the agreed value of the house.

The other problem I have with this supposed fee is that once the person doing the buying out sells the house, half of the real estate fee will have been paid up by the other party....

Is this really how it goes?

Thanks in advance for the help

[billiechic]

Thanks for your responses. I am a little confused by this disposition fee. I would expect that there are some fees involved, but don't understand how I could be charged something close to a real estate commision. In that case I would rather sell the house to someone else. Why should he get a better deal than me?

[wellwell]

Answer at last

Hi
I finally got an answer speaking to a family law lawyer, and it was pretty unequivocal. i hope it's not too late for you BillieChic

I was told in no uncertain terms that by the letter of the law, the calculation for a mortgage buy out is as follows:

Fair market value of the house
- outstanding Mortgage
- other outstanding debt (cedit line etc)
-----------------------------------------
/2
---------------------------------------
= your buyout payment

As keeping the house is in the advantage of the person doing the buy-out (it is an investment and will acrrue in value), the person being bought-out is not obligated to pay part of the mortgage penalty or any lawyer fee associated with the transfer.

For the same reason and because the house is not sold and no agent is involved, NO real estate fee (or disposition cost) of any kind is to be included in the equation.

I was told that the court made it very clear and that there is an abundance of case law to support this.

Remains to be decided if you want to share the cost of the mortgage penalty and lawyer fees in good faith to avoid making things worse.

At least now it is clear.

[billiechic]

Thank you Wellwell. My stbx was mistaken and has clarified how it will work. You are right! The bank will send out an appraiser and I will get half of the value of the home after the current mortgage is deducted. He will have to pay any fees, and there are no real estate or disposition fees.

The bank just wants a signed separation agreement first so everything is done legally. we have already agreed on most things, including child custody, support and who will assume which debts. I hope to get it to him next week.

[billm]

It seems fair to me that you should split the cost to dispose of the current mortgage (cancel mortgage penalty) as this has nothing to do with who is buying the house. You have both decided to no longer continue with your mortgage agreement, why should only one of you pay the penalty?

Also, FYI, I bought out my spouse, there was no penalty, the bank waved it because I got the new (and much larger!) mortgage with them. We split the lawyer fees for transferring the title, but I paid for any fee etc that dealt with me as the new owner.

[Deputy Daddy]

It seems fair to me that you should split the cost to dispose of the current mortgage (cancel mortgage penalty) as this has nothing to do with who is buying the house. You have both decided to no longer continue with your mortgage agreement, why should only one of you pay the penalty?

I can answer that since I recently did exactly that, but by a unilateral choice since I bought my home after separating and there is no split involved.

The penalty is a one-time payment, but the advantage to your ex (right now) is that he will likely have a much lower interest rate than you currently pay. In my case the penalty would be paid off in about 6 months at the new interest rate and after that I am better off than if I hadn't refinanced.

DD

[billiechic]

the house is sold and will close on Friday. Maybe this information will help someone else though

[dadtotheend]

Using a reduced real estate commission for settlement purposes, usually 2.5%is not uncommon. Yes, the house is not being sold, but on the other hand if it was there would be a 5% fee, and that technically is a liability against the value of the house were it turned into cash by selling it.

Plus the spouse buying out the other will ultimately pay that fee when he/she sells the house, so it's not unreasonable to include something in equalization to reflect that

[billiechic]

Also, FYI, I bought out my spouse, there was no penalty, the bank waved it because I got the new (and much larger!) mortgage with them. We split the lawyer fees for transferring the title, but I paid for any fee etc that dealt with me as the new owner.

If he had decided to buy me out (which he didn't) then there would not have been a penalty as he would have signed a new mortgage or removed me from title. The bank would not have lost anything.

It is common practice for the party buying out to pay the lawyer fees though.