Divorce And Title Insurance

Have you’ve ever received a title commitment back from your examination department showing a requirement related to a divorce for your client and 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. This language is often lacking when the divorce lawyers prepare the final decree. If the decree is incomplete a warranty deed from the ex-spouse is needed 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, your examination department must review the divorce decree. In looking at a divorce decree the examiner 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 you cannot rely on it because it could be appealed) until thirty days have passed since the judge approved and ordered the decree. 

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 then the decree does not provide notice to the divested spouse’s creditors and could make the property subject to attachment for any judgments filed post-divorce against the spouse. 

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 you are looking pretty good for closing but we have to keep reading. 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.”

By themselves, the descriptions above are likely very clear to the husband and wife that are divorcing, but they are insufficient to transfer title and put the required creditor notice in the public records. Neither of the descriptions provides enough specificity that the required public record notice is made. A decree with either description shown 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.

Let’s contrast this scenario with a divorce decree that lists the property as follows:

“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.”

This description is sufficient to transfer title and put creditors on notice of the conveyance. 

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 you are paying the lien through the closing you should also require the ex-spouse to sign a Release of Lien before releasing funds to them since they can be difficult to track down once paid from closing. 

If your client is refinancing a homestead it is important that the property documentation for an owelty lien is put into place so that a rate/term refinance is permissible as well. 

LIEN ON THE PROPERTY AGAINST ONE SPOUSE BEFORE THE DIVORCE

Another surprise that can happen for sellers involves judgments against the ex-spouse. If the judgment was ordered and abstracted against the spouse prior to the decree being filed then the spouse who received the property is often surprised to learn that the lien still affects the property and must be paid or released. 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, the seller 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 closing docs as the seller unless the divorce is final before closing (remember, that means 30 days after the final decree is ordered) or the judge awarded temporary orders pertaining to the sale of the property. If the spouses finalize the divorce before closing, it is very important that the decree contain all required language and a good legal description. You also want to be careful to fund the transaction in a way that complies with the court ordered divorce decree. 

Matters of divorce can be very complex and there are many instances where a title company needs to have documents prepared to get through closing. We would love to work you to help navigate the transaction and prepare the documents that are appropriate for your transaction.