Divorce Deals. David M. Hays Underwriting Counsel

Transcription

1 Divorce Deals David M. Hays Underwriting Counsel

2 IN ORDER TO UNDERSTAND DIVORCE WE MUST FIRST UNDERSTAND MARRIAGE. (Marital Property Rights) 2 Marital Property Law 101: Separate Property v. Community Property Separate Property consist of property owned or claimed by the spouse before marriage, and the property acquired by spouse during marriage by gift, devise, or descent. (Texas Family Code 3.001) Community Property consists of the property other than separate property, acquired by either spouse during marriage. (Texas Family Code 3.002) Property possessed by either spouse during or on dissolution of marriage is presumed to be community property. (Texas Family Code 3.003) (This means the burden of proof is on the party claiming that the property is not community property.) 3

3 Marital Property Law 101 Partition of Community Property: At any time, the spouses may partition or exchange between themselves all or part of their community property, then existing or to be acquired, as the spouses may desire. Property or a property interest transferred to a spouse by a partition or exchange agreement becomes that spouse separate property. (Texas Family Code 4.102) A partition or exchange agreement must be in writing and signed by both parties. (Texas Family Code 4.104) A simple deed between from one spouse to the other does not convert community property in to separate property. For insuring purposes, this document must be filed of record and include the legal description of the subject property. 4 Marital Property Law 101 The Homestead Whether the homestead is the separate property of either spouse or community property, neither spouse may sell, convey, or encumber the homestead without the joinder of the other spouse. (Texas Family Code 5.001) 5

4 Closing issues related to 6 Closing issues related to H & W are in the process of getting a. One of the parties wants to purchase a new home during the proceedings but prior to the final order granting the and does not want to include the soon to be exspouse on the documents. Can we insure? 7

5 Closing issues related to Answer: Yes, we can insure in this scenario, even though the is not final. We would require that the purchasing spouse take title as his/her sole and separate property and that a vendor s lien be reserved and retained by the lender. Authority: Texas common law holds that the vendor s lien is a superior interest in the property, taking precedence over even a claim of homestead rights that could be asserted by the non-purchasing spouse. However, we would not insure the purchase if it violated a court order. 8 Closing issues related to H & W are in the process of getting a. One of the parties wants to sell a property without their spouses signature. Can we insure? Answer: Maybe. If we have good evidence that the property is the separate property of the selling spouse, we may insure this transaction. We would require the vacated spouse to sign a non-homestead affidavit. However, if there is any question as to the character of the house (SP/CP) we must wait until the is final and the court has made an award of the property. 9

6 Closing issues related to H & W are in the process of getting a. One spouse wants to deed the homestead to the soon to be ex-spouse so he/she can get a home equity loan without the spouse s joinder on the loan docs. Assuming Community Property. Can we insure? 10 Answer: Closing issues related to No. We will not insure this transaction. Reason: You are married until you are d, and the Texas Constitution prohibits loans on homestead property without the spouse s signature. 11

7 BUT WHAT IF you have proof that the other spouse has already moved out of the house and is not claiming the house as his/her homestead? Texas Law provides for one homestead per family. Until the is final, the couple represents a family and the property is homestead of the family. 12 Closing issues related to Divorce decree is signed on July 1, On July 15, 2012 ex-spouse who obtained title to the residence wants to close on a home equity loan to fund the settlement. Can we insure? 13

8 Answer: Closing issues related to No. We will not insure this transaction. Reason: The decree is not final for 30 days after the decree is signed. The terms of the and awards of property can be changed. 14 Closing issues related to H & W are going to get a, and they want to deed property from one to the other prior to in order to get the spouse out of title and refinance. Can we insure? 15

9 Closing issues related to No. Again, you are married until you are d. Deeds between spouses during marriage do not create separate property unless accompanied by a written post-marital agreement, filed of record. 16 Closing issues related to No adjudication of title $300.00, and decree does not address ownership of community real property. One spouse is living in the property and wants to sell or refinance without joinder of ex-spouse. Can we insure? 17

10 Closing issues related to No. Neither spouse was awarded the property. We require joinder of the spouses or a deed from one to the other something we couldn t do when they were married. (Could go back to court but rarely happens) 18 Warning! Any Time the decree fails to award the community property to either spouse, you must be very careful in accepting a deed from the divested spouse to the awarded spouse. Often times the Granting Spouse is receiving or demands to receive equity from the sale or refinance. You cannot disburse funds to an ex-spouse in a refinance unless the parties create an owelty lien or unless the vested spouse executes a home equity loan. In the case of a sale, we would want the ex-spouse who claims to be owed equity, to provide a signed pay-off amount and release of claims, etc. 19

11 What the heck is an Owelty Lien anyway? An Owelty Lien is used when one spouse needs to obtain a loan to buy out the other spouses equity, usually in connection with a. The proper way to create an Owelty Lien is for it to be created simultaneously with the through the language contained in the decree. 20 Real World-Owelty Lien However, if the attorney fails to create an Owelty Lien in the decree, the lien may be created by written agreement filed of record after the ONLY IF BOTH SPOUSES REMAIN IN TITLE. Sometimes referred to as an Owelty of Partition. If no Owelty Lien was created in the and one spouse is awarded the property, then we have problems. You can no longer create and Owelty Lien because there is nothing to partition. 21

12 Owelty Lien Created by Divorce Decree 1) Divested spouse executes an Owelty Deed (retaining an Owelty Lien) conveying his/her interest to Awarded Spouse. 2) Awarded spouse executes an Owlety Note & DOT payable to the divested spouse to evidence the Loan to buy out the divested spouse. *These documents should be drafted by an Attorney and be a part of the proceeding. 22 Owelty lien-why all the fuss? An owelty lien, secured by a owelty deed of trust can be refinanced by the awarded spouse through a standard rate and term refinance of the property. (Article 16, Section 50 (a) (3)) If an owelty lien is not properly retained in the decree, or if the parties are unable to execute a written agreement for an owelty of partition after the (because one was awarded the property), then the only way for the awarded spouse to pay-off the divested spouse is to obtain a home equity loan. We have a problem if there is NO owelty lien and: One spouse was awarded the property; Divested spouse was awarded $$$ for his/her ½ equity in the home; or Divested spouse claims that they are owed money; or There is any suggestion at all in the decree that the divested spouse could be owed money. 23

13 Owelty Lien-Why all the fuss? Example of a common problem: Decree awards property to the wife and awards the divested spouse $15, for his equity in the house but the attorneys fail to include owelty language in the decree. A year later the ex-wife wants to refinance the current purchase money mortgage and pay off her exhusband. Problems: No owelty lien retained so xh basically has an unsecured lien; No owelty line retained AND the property was awarded in the decree so we cannot create an owelty of partition by written agreement wife owns the entire property so nothing to partition. We view the $15k as a cloud to title and require a release from xh. Wife could do a home equity loan but: Value of Home $100,000 1st Lien PM $ 70,000 Available equity under HEL Laws $ 10,000 ($100,000 x.80=$80,000-$70,0001st=$10,000) Wife doesn t have enough equity to pay xh $15K; what if he won t sign a release of lien/claim? 24 How to Payoff an Owelty Lien Assuming there is a valid owelty lien of record you must: Obtain a signed payoff statement from the divested spouse; Obtain a signed release of lien from the divested spouse. Do not rely on a payoff statement that is unsigned. Often times the xspouse is taking less than was originally awarded either due to valuation issues, or other offsets. We need to make absolutely sure that they are in full agreement with regard to the amount they will be paid at closing. 25

14 Real World No adjudication of title You get the quickie, and decree does not address ownership of separate real property. If you re past the time period for appeal and the decree is final, we re going to follow the inception of title rule, and treat it as separate property... Inception of Title Doctrine. We determine whether property is separate property or community property based on what the status was when the property was acquired. 26 Real World Property awarded to one spouse in the decree but there is only a street address - no real property description. Historically, we ve turned these down and required either the court order to be clarified by the judge or a deed from the ex. Now, IF you have tried and failed to get a deed from the ex, we will look at the description and the development and make a judgment call as to whether the address is sufficient to avoid future confusion. 27

15 Real World- IRS LIens Your Client was awarded the community property homestead. A title search reveals Federal Tax Liens against the ex-spouse who is no longer in title, but the lien was perfected prior to. What Now? An IRS lien perfected prior to attaches to the undivided interest of the debtor. The spouse who is awarded the property takes the property subject to the IRS Lien. The lien should be considered during the proceedings. Must obtain a release as to the property. 28 Real World- Other Liens Divorce does not impair the rights of creditors. Once a lien attaches to property, the cannot and does not remove it. Abstracts of Judgment: Homestead- State AJ s do not attach but can crate a cloud on title; Abandonment-If the ex-spouse abandoned the homestead prior to the (which we typically assume), an AJ against him or her may attach to his or her ½ interest in the property. 29

16 Real World ISSUES AFTER DIVORCE What if the decree awards the real property, but divested spouse never files a deed of record. We prefer to obtain a deed from the divested spouse. The deed would typically contain recitals that it is being executed pursuant to the decree ordered under Cause Number However, if we cannot locate the divested spouse, or if the divested spouse is uncooperative, we will allow for a complete, certified copy of the decree to be filed of record in the real property records. You should have your client sign a written directive for you to record the decree so that you have evidence that they are comfortable with all of the information in the decree being revealed in the property records. 30 REAL WORLD-Wills What effect does have on a will? Texas Probate Code 69 (b) If, after making a will, the testator s marriage is dissolved, whether by, annulment, or a declaration that the marriage is void, all provisions in the will, including all fiduciary appointments, shall be read as if the former spouse and each relative of the testator failed to survive the testator, unless the will expressly provides otherwise. Don t rely on a probated will leaving property to xspouse. 31

17 Real World-POWER OF ATTORNEY What effect does have on a Durable Power of Attorney? Texas Probate Code 485A If, after execution of a durable power of attorney, the principal is d from a person who has been appointed the principal's attorney in fact or agent or the principal's marriage to a person who has been appointed the principal's attorney in fact or agent is annulled, the powers of the attorney in fact or agent granted to the principal's former spouse shall terminate on the date on which the or annulment of marriage is granted by a court, unless otherwise expressly provided by the durable power of attorney. As you can see the POA continues to be effective until the is granted, thus another reason why we need to ratify a POA prior to closing, even between H & W. 32 REAL World-RULe 11 Agreements Prior to a final decree of your client brings you a Rule 11 Agreement signed by the parties and their attorneys, stating that they agree wife will get the property. Wife wants to sell the property with out joinder of the husband. What is a Rule 11 Agreement: Texas Rules of Civil Procedure-Rule 11 Unless otherwise provided in these Rules, no agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing, signed and filed with the papers as part of the record, or unless it be made in open court and entered of record. 33

18 Real World-Rule 11 Agreements Despite the agreement of the parties, they are still married until d and we would require joinder of both spouses. In addition, while Rule 11 Agreements can be binding, upon the agreement of the parties the Rule 11 Agreement can be changed; and there are cases where a single party challenges a Rule 11 Agreement based on misrepresentation of the other spouse. 34 THAT S ALL FOLKS! 35