[00:00:00] David Bulitt: Welcome to JGL Law for You. JGL Law for You is a podcast by
lawyers, but not for lawyers. Only on JGL Law for You do we discuss a wide array of
topics to help you navigate the many legal processes, developments in the law, other
current events, and how they may affect you, your family, or your business.
[00:00:20] Today, we’re talking about a law that’s been enacted here in the state of
Maryland, and one that really impacts a lot of people going through divorce. Many laws
are passed by the legislature when it comes to family law issues that don’t have that
much impact, that much influence, and frankly, that much effect on what people do
during the course of a divorce case.
[00:00:40] But today we’ve got something completely different, and to help us walk
through this new law and what it means to you is my friend and law partner, Chris
Castellano. Welcome, Chris.
Chris Castellano: Thank you for having me, David. Always, always a pleasure.
David Bulitt: So, let’s dig right in here. We’re talking about Maryland’s law, HB 1018,
which talks about the assumption [00:01:00] of a mortgage as part of a divorce.
[00:01:02] So tell us about the law, what it does that’s different, how it changes things
up, and why it matters to people.
[00:01:08] Chris Castellano: Yeah, what this really does is create a great opportunity to,
as I kind of referenced, open doors to people engaged in the divorce process. You
know, an assumption in and of itself is not a new concept, as you and I are both well
aware.
[00:01:23] But what this law does is, like I said, open those doors. Previously, what’s
happened in a lot of situations is that, when people are going through a divorce, you’re
left with pretty much two options on the house, right? On the marital home, you either
agree that one person stays in the house and they buy out the interest of the other
party, and you refinance the house, right?
[00:01:45] You get a new loan, fresh loan, fresh terms, etc. Or you just sell the thing,
right? Nobody wins. Nobody’s keeping the house, and you just split the proceeds. What
gets lost in the fray of all this is, well, what about the people that had a loan [00:02:00]
that’s got 12 years left or 18 years left on the term?
[00:02:04] And it’s at something like — what we were looking at before, during COVID
— like 3.3%, 3.0%, 2.95%, right? These percentage numbers that people look at with
wide eyes nowadays, right? Because now we’re looking at 6.5% at the bottom line. So,
what this new law does is that the legislature decided, “You know what? For these divorcing parties, let’s open these doors. Let’s give them an opportunity to make sure that as they enter this next phase of life, they’re not setting themselves up for economic failure with a bad loan or starting back at square zero on a 30-year loan.”
[00:02:50] It mandates that these financial institutions that are in the business of offering
these mortgages offer this type of assumption when it arises in connection with an
absolute [00:03:00] divorce decree.
David Bulitt: Just to lay this foundation a little bit more, what I have found — and I’m
sure the same is true with you — is that there are two big issues here. One issue is that
the interest rates are often, particularly for people who either refinanced or purchased
their home [00:03:12] four, five, six, or seven years ago, significantly lower than what
they might get now if they had to go back out on the marketplace.
[00:03:30] Secondly, of course, some people may not qualify on their own to get a new
mortgage, right? Either because their income is significantly lower than it was
combined, or because the interest rate is so much higher that it makes the payment
difficult for that person, who, under the old world, would be able to pay. Does that make
sense?
Chris Castellano: That’s right. I mean, [00:03:40] when we look at loans, it’s hard to
appreciate the effect of the interest rate. And if someone took out — I’m not a mortgage
originator, I guess we should tell our listeners — I’m not providing financial advice. But
at a base level, you and I run numbers for our clients in these cases.
[00:03:58] And you’ve got [00:04:00] a, let’s say, a $450,000 loan, right? If you’re at
3.0%, then you’re looking at a payment of like, what, $2,500, $2,600, right? A 6.5% loan
could be somewhere in the neighborhood of almost double that for the same term. So,
you do — I should say, you still need to qualify — but as you rightly point out, the
qualification parameters are different, right?
[00:04:26] Qualifying for a refinance of the loan, or a new loan, at a lower income with a
6.5% rate is an entirely different prospect than qualifying for an assumption loan that’s
at a 3% interest rate, with a monthly payment of $2,500 or $2,600.
David Bulitt: Let’s just make sure everyone is clear on the difference between
refinancing and assuming a loan.
[00:04:53] Chris Castellano: Yeah, so refinance is when you have an existing loan and
you are [00:05:00] — I like to think of it as — refreshing the terms in a situation where
you’re changing the players. So, for instance, it’s a couple that’s on the loan and we’re
refinancing to drop the one spouse off, right?
[00:05:22] In most cases, the loan length is going to go back up to 30 years if it’s a
typical conventional loan, and it’s going to be at market rates, generally speaking, right?
Right now, it’s at like 6.5% or so — 6.25% maybe, if you’re lucky.
An assumption, on the other hand, which again, I should say, was always available, but
a lot of people didn’t really take advantage of it, right? What it allows people to do is
take their existing loan, both people on the loan, the spouses on the loan, together, and
say to the bank, “Listen, bank, we’ve got this loan. I’m still [00:06:00] making good
money. We’ve got a divorce, and what I would like to do is take over the loan. I can
handle the loan on my own. I’d like to take it over, but do me a favor: don’t change the
terms on me. I only have 12 years left. I want to keep the 12 years left, and I want to
keep that 3% interest rate, so I’m just dropping the other person off.”
David Bulitt: Does this apply to all types of mortgages? In other words, conventional 30-
year loans, 15-year loans, adjustable rates — every type of mortgage? Or is there some
carving out of those that it doesn’t cover?
[00:06:37] Chris Castellano: So, there are certainly some significant carve-outs, right?
From what I could tell, the carve-outs are predicated on the concept that any loan that
Maryland is talking about, it wants to avoid federal preemption, right? So, any loan that’s
got federal backing is going to be exempted from this statute.
[00:07:00] So you’re talking FHA loans, VA loans, USDA loans, etc. That also includes
banks that are operating on a national scale, depository banks. What we’re really talking
about here are loans from — and I’ll use the specific phrase just to be very technical
and specific — non-depository banking institutions, right? Banks that are not taking
deposits and withdrawals as an ordinary business function, that are offering mortgages
[00:07:32] for the purposes of originating said mortgages, and they are not dealing with
specific federally backed loans like FHA, VA, or USDA loans.
So, like you said, we’re talking about conventional loans, and that does include, in a lot
of ways, jumbo loans, which are, quite frankly, not as heavily used right now — at least
in the last few years. I’m sure they’ll make a comeback at some point once we all start
not thinking about them.
David Bulitt: Yeah, so if I bank, for example, at Bank of America or SunTrust — or
whatever it’s called now, Truist — and I’ve got my mortgage with them, they’re not
obligated under this law to permit the assumption. Is that right?
[00:08:18] Chris Castellano: That’s right. The reason for it is not to disqualify the bigger
loans that a lot of people have. It’s really that these bigger lenders are already operating
under the purview of a lot of federal regulations, and Maryland can’t — they are
preempted by those federal regulations, meaning that Maryland can’t put itself above
those federal laws.
[00:08:48] I would love to have that federalism conversation with you if you want to on a
different day. But as far as this mortgage conversation—
David Bulitt: That’s alright. That’s a whole conversation in and of itself.
Chris Castellano: Yes, exactly. But as far as this conversation, no, it was not done, so
far as I could tell, to disadvantage those going with the big banks, but just because of an
[00:09:00] inability to deal with banks that have federal entanglements.
David Bulitt: But for those of us who may have our mortgage with one of those
nationwide banks, let’s call them, you’re not precluded from going to your lender — that
Bank of America, that SunTrust, that Truist, whoever they may be — and saying,
“Listen, I’d like to try to do this,” right? You can still go to that bank and see if they’ll do it
for you.
[00:09:22] Chris Castellano: That’s right. No, as we opened up here, an assumption is
not a new concept, right? I haven’t talked to you specifically about this in the past, but
I’m sure you’ve done a lot of assumptions. I’ve done assumptions in my cases, and it’s
always been a very useful tactic, right? To deal with the house and the loan in an
advantageous way.
So no, they can certainly go to the big players out there that are doing mortgages to get
an assumption. I like to view this as a mandated disclosure requirement and offering, as
opposed to too much more than that, right? This is forcing these specific banks that
[00:10:00] Maryland can regulate to say, “No, you have to offer divorcing couples this
option.”
David Bulitt: Let me ask you a question about the qualification piece of this. What does
it mean when the statute says you have to qualify?
[00:10:13] Chris Castellano: You know, when you go through the process of originating
a new mortgage, right, if we all remember, you’re giving however many years or months’
worth of pay statements and bank statements, utility statements, and a vial of your
blood, and everything else under the sun. The qualification process for the assumption
is going to be based on the institution, so institution-specific, but it is generally speaking
a lighter process.
[00:10:53] But it’s by no means less important, because the bank still needs to make
sure that they do their due diligence to determine that an individual can still qualify,
meaning that they can still pay that loan and pay it now on their own as opposed to with
a [00:11:00] second individual attached to the loan.
David Bulitt: Does this qualification provision — and I don’t know if you know the answer
to this, and I certainly don’t — allow for a bank that maybe, again, we talk about banks
because they’re buildings because we deal with them, but bank management is a group of people who are together and managing the business of that bank to make money.
So, is there any room for maneuverability for a bank that says, “You know what, we
don’t want to do this. We have to at least let people apply, but they still have to qualify.”
Is there any room for a bank, A, to sort of not qualify people to avoid these loans? And
B, is there motivation — could there be motivation — for those institutions not to permit
these assumptions? In other words, say, “Okay, you’ve applied, but you’re not qualified.”
[00:11:47] Chris Castellano: Yeah, I mean, I would love to know your thoughts and your
experience on this. Assumptions — let me back up — refinances have always been a
straightforward process, right? To dump the other person off the loan. You refinance;
you get a fresh loan. Assumptions were never a straightforward process, and I have
every confidence to believe that’s going to remain the case.
[00:12:20] So to answer your question, does the statute change that? I’ve seen nothing
in the statute that changes the process insofar as it will be easier or harder. To answer
the second part of your question, is there an incentive to the banks? I think that
incentive remains. That incentive remains to prevent assumptions.
I mean, from a business standpoint, you have every incentive under the sun to deny an
assumption, to force people into a brand-new loan for an extra 15 or so years — or
whatever the term limits may be — with a much higher interest rate. I mean, they stand
to gain exorbitantly more money doing that.
David Bulitt: They certainly do. The flip side of that, of course, is that the borrower or the
proposed assumer — if that’s the right word, the person who wants to assume the loan
— can’t afford the new rate, and therefore they sell. They’re going to put the house on
the market, and the bank loses all of the interest because the new buyer uses a different lender. It’s an interesting question.
[00:13:10] Chris Castellano: It is. I mean, and again, you and I can have a more
interesting conversation on that — as though this isn’t already an interesting
conversation — but also on how many mortgages are now being purchased by other
institutions as opposed to individuals, right? I don’t want to step into the fray of politics in
that regard, but I think there is a larger discussion to be had on whether these banks are
fostering mom-and-pop loans for [00:14:00] individual Americans to have properties as
opposed to larger hedge funds, because one of the largest growing segments of
homeowners in America is large hedge funds.
David Bulitt: Let’s shift now to those folks out there who are listening and really want to
get their hands around what this law’s real impact on them is and what they might be
able to do during the divorce process. How can it help me, help my family, help my kids?
[00:14:08] Chris Castellano: Yeah, I mean, I think that the house represents — it’s a
microcosm of the family, right? It’s where the first birthdays, 10th birthdays, retirement parties for family members, funeral wakes — everything happens in the household. It
takes on a personality in and of itself, right?
[00:14:54] There’s no mistake — we’re entering into the Halloween season — that a
genre of horror movies is haunted houses, right? Because they are themselves a
character. We view houses as a personality in and of itself. I say this not as a frolic and
detour, but to build up the concept that the house is an incredibly important feature of
one’s [00:15:00] life because the house represents stability. It represents where routines
are established. It’s where memories are created and fostered.
So, for a lot of people — I mean countless people out there, the vast majority — their
desire in a divorce case, and I’m sure they’ve communicated this to you, is: “I want to
keep the house. I want the kids to stay in the house. I want that stability.” And for the
longest time, up until this law really, for the most part, how to deal with the house has
been kind of a significant speed bump, right? Because if the interest rates are too high,
or the terms are such that the parent who’s acquiring the house, for instance, just can’t
take it on with a refinance, then you’re out of luck.
[00:15:52] This assumption opens that up. It opens up the ability. So, I give credit to the
legislature for really forcing this because we can have a lot of discussions about
whether they’re doing things for the betterment or not. I don’t think there’s any doubt in
this situation: this law is meant to help families and to help families dealing with a
terrible time in their life, which is their divorce, and give them that kind of life preserver
[00:16:19] to say, “No, you know what? We’re going to offer this to you, and we’re going
to make the banks offer it to you.”
Now, whether we’re going to force the banks to approve it is a different story entirely. I
don’t think they can do that. But at least the conversation is now started. And once you
have enough people asking for assumptions, I’ve got to tell you, I don’t know how many
banks are going to get away with just wholesale denials.
David Bulitt: I don’t see any downside at all to this legislation. I mean, we both look at
new laws that either come through committee and to the House — some that pass,
some that don’t — and most of them, one could argue both sides, right? There’s a
reason not to enact this particular piece of legislation. But in this [00:17:00] case, I don’t
see that it hurts anybody. All it can do is be, as you mentioned, a neutral or a positive. If
nothing else, it’s going to have a positive impact on families going through divorce. I
think that’s the main takeaway.
So let me ask you this question. I’m listening to this and saying to myself, “Okay, this is
great. I’ll just call my bank, or I’ll take care of it.” How does getting a lawyer — and you
know how I feel about this, and there’s never a divorce case that comes down the pike
that somebody shouldn’t at least talk to a lawyer for. People are hesitant to spend money, and I certainly get that. I would be too. But in this case, what’s the benefit of
having someone like you help someone navigate this specific issue, both in terms of
negotiating the agreement and looking at the options when it comes to a potential
resolution of financial issues in your divorce case?
[00:17:52] Chris Castellano: Well, yeah, I mean, I’m with you, right? Anytime that there’s
a development in the law or something that could be fiscally [00:18:00] advantageous,
talking to a lawyer first is always — of course, I’m biased — but I do believe that that’s
your first step. An assumption in and of itself is part and parcel to the divorce process.
So more likely than not, you’re going to be talking to someone like yourself or myself to
talk about not even just the house, but child custody and child support and all the other
issues that go along with divorce. But talking to an attorney that is aware of assumptions, that is aware of this new statute, that is aware of how to deal with banks and these mortgage institutions on assumptions, gives the party — our clients — an additional tool in their tool chest, right, to deal with this.
[00:18:46] Because if you talk to a lawyer — or even go at it on your own — that doesn’t
have that background knowledge, then you’re really cutting off your nose to spite your
face, because what this [00:19:00] law is, as you said, it’s only beneficial to the clients.
It’s an opportunity for these clients to come out of the divorce fiscally minded and in a
more stable position. Quite frankly, talking to a lawyer who doesn’t understand this, or
not talking to a lawyer at all, that’s the quickest way to throw away the cost savings that
an assumption provides. So again, cut your nose off to spite your face at your own risk,
as far as I’m concerned.
David Bulitt: Yeah. And this isn’t just a decision for you individually, for those of us who
are listening out there, but it’s a decision that affects your family, affects your children,
affects all the things that, Chris, you mentioned earlier, that people are interested in
protecting.
[00:19:42] And so we live in a soundbite world, right? So, give me two or three
soundbite takeaways that people can take from this discussion that we’ve had today.
[00:19:53] Chris Castellano: Yeah. The Maryland legislature has done a service to
Maryland clients and Maryland couples. [00:20:00] What they’ve done is they’ve
essentially mandated that mortgage lenders offer the opportunity to assume a very
advantageous loan.
[00:20:11] It’s an opportunity for you to stay in your house, maintain stability for your
kids, and do what’s right for your family both emotionally and fiscally. Talking with the
right attorney, like us here at Joseph Greenwald & Lake, can help really set yourself up
in a good way.
[00:20:29] David Bulitt: Alright, Chris, thank you very, very much. I think this has been
incredibly helpful and informative to folks out there. And if people want to ask you more
questions about this law or talk to you about their potential separation and divorce,
what’s the best way for them to get hold of you?
[00:20:43] Chris Castellano: Yeah, by giving me a call at 240-399-7881. That’s my direct
line. I’d be happy to talk to you at any time, not only about this new law, this assumption
law, but also about your separation agreement or case [00:21:00] generally. I’d be
happy to have a conversation.
David Bulitt: Folks, this is such an important, important development in the law. If you
live here in Maryland, have property here in Maryland, do yourselves a favor and give
Chris Castellano a call. Thanks for listening, and we look forward to hearing from you
and seeing you next time on JGL Law for You.
