What a Realtor Should Know About Divorce and Title Insurance

If you’ve ever received a title commitment back from your title company showing a requirement related to a divorce for your client you’ve likely wondered why there are additional requirements being made on your Schedule C.  In order for a title company to rely on a client’s divorce decree the decree itself must contain some very important language. If the decree is incomplete a warranty deed from the ex-spouse can be required which often results in an unhappy experience for your clients.  The article below discusses a few scenarios that can create delays in getting to closing.

Title Insurance Requirements for Divorce
Before title to a property can be changed between divorced spouses, a title company must review the divorce decree.  In looking for a valid divorce decree the company will be looking for a final, non-appealable order admitting the decree to the divorce suit.  This decree must have been ordered by the judge at least 30 days prior to closing so that the time for either spouse to file an appeal has passed.  A decree is not “final” (meaning we cannot rely on it) until we have passed the 30 day mark.

Divorce And Actual Transfer of Title
In order for a divorce decree to actually transfer title between the spouses the decree must include language that specifically grants the property to one spouse and divests the other spouse of any and all interest in the property.  Additionally, the divorce decree must contain the legal description of the property.  Citing just the physical address of the property is insufficient to transfer title between the spouses.  The legal description is required because the real property records are indexed under the legal description.  When a decree lacking the legal description is recorded in the county it is not effective to give notice of the title transfer.  If the transfer of the property is not properly recorded as notice in the real property records, the divested spouse’s interest remains exposed to creditors as well.    

For demonstration purposes let’s look at the following clauses that are common in a divorce decree.  The language typically starts out with something similar to “It is ordered and decreed that the husband, John Doe, is awarded the following as his sole and separate property, and the wife, Jane Doe, is divested of all right, title, interest, and claim in and to…

So far, so good! The decree divests Jane of any interest that she has. The decree also awards John the property.  Assuming that we are 30 days past the order we are looking pretty good for closing.  Now let’s look at how the decree might describe the property that is now under contract and ready for sale.

“It is ordered and decreed that the husband, John Doe, is awarded the following as his sole and separate property, and the wife, Jane Doe, is divested of all right, title, interest, and claim in and to….
“The homestead property.”
“123 Main Street, Austin, Texas.” 
“123 Main Street, Austin, Texas, also known as Lot 1, Block A, Circle C West, Section 1, as recorded under Volume 3, Page 45, of the Travis County Official Public Records.”

By themselves, the descriptions shown under options A and B are insufficient to transfer title and put the required creditor notice in the public records.  Neither A nor B describes the property with enough specificity that the required public record notice is made.  A decree with either description shown in A or B above will require further action from the ex-spouse before your client is able to sell the property, most commonly in the form of a warranty deed.  

Lien Imposed Against Property by Decree
Any divorce decree between property owners must also be reviewed for lien language.  If the decree imposes a lien against the property in favor of one ex-spouse, that lien must be satisfied at closing or the ex-spouse must sign a release of lien.  If a title company is paying the lien through the closing the ex-spouse will be required to sign a Release of Lien before funds will be released to them.     

Lien on the Property Against One Spouse Before the Divorce
Another surprise that can happen for sellers and their agents involves judgments that were rendered against the spouse whose interest has been divested in the decree.  Many spouses are surprised to learn that when they were awarded the property through the decree they actually took that interest subject to the lien against their ex-spouse, meaning the lien still applies to the property.  The judgment (commonly an Abstract of Judgment, IRS lien, child support lien, etc.) attaches to an owner’s interest at the time the lien is filed.  If this occurs during the marriage, the lien applies to the property.  When the decree grants all of the interest to the other spouse, they take that interest subject to the lien and the lien encumbers the property unless the remaining owner is able to get a Partial Release of Lien on the property. Without the Partial Release of Lien, we must pay off the lien at closing or find another legal remedy to remove the lien.  

Seller With a Pending Divorce
If your sellers are under contract and have a divorce pending, they must both sign at closing unless the divorce is final before closing (remember, that means 30 days after the final decree is ordered).  If they finalize the divorce before closing, it is very important that the decree contain all required language and a good legal description.  Without a final, non-appealable, decree containing all necessary items the proceeds checks will be payable to both spouses, unless otherwise instructed in writing by both spouses and possibly their counsel.   

Purchasers With a Pending Divorce
If someone buys a piece of property during their marriage, the property is presumed to be community property.  If they are asking legal questions about how to take title, they should be referred to their divorce attorney so that a realtor is not providing legal advice to their client.  This can be very sticky and an agent should not offer advice on this piece.      

Most of the conversations regarding divorce and title issues will happen between the title company and the seller of the property. It is important for a realtor to understand why certain requirements are being made so that they can help the client feel comfortable with the transaction. Our closers at Texas National Title are all very well versed in dealing with divorce issues on transactions and are always here to help you navigate these sticky situations. 

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