The typical Texas divorce should include the award of all property and debt with specificity. Personal Property that is evidenced by a “title” such as a motor vehicle or manufactured housing, or a deed for Real Property consisting of land and improvements thereupon such as a house, should be specifically listed in the decree with full and complete legal descriptions and/or identification numbers. For real property, full and accurate descriptions that are as complete and as used in the original purchase deed are necessary. Special attention must be paid in all of the documents if there is a reservation of any interest in the award of real property, such as mineral interests that run with the land or specific interests in existing mineral leases. The decree should also include the statement that the decree of divorce shall be considered a muniment of title for property awarded in the decree.
For vehicles, in Texas, if the vehicle make model and year and Vehicle Identification Number are correctly listed in the decree, then a certified copy of the decree can be used in the transfer of ownership at the County Tax Assessor’s Office. Usually, a vehicle must be re-registered in the county in which the new owner will reside. If there is a chance the vehicle will not be re-registered in Texas, or there will be significant delay, such as in the case of a pending and unpaid lien, then a separate Power of Attorney to Transfer Motor Vehicle is commonly used as this legal authority will be recognized in other states.
Properties and Mortgages
If, as part of a divorce decree, one party gives up or grants their ownership interest in a real estate property to the other (i.e. via a special warranty deed,) but remains on the mortgage and there is no assignment of responsibility accepted by the lender for the obligations and liabilities associated with the property, the liability remains and shows up on credit reports and can interfere with mortgage qualification. For real property, it is best to draft and use a separate Deed to transfer ownership from one spouse to the other per the terms of the decree.
In a divorce, typically the “marital residence,” is awarded to only one spouse, along with and any debts or mortgage note associated with the property. Documents often used as a solution to this problem are a Special Warranty Deed to be used in conjunction with a Deed of Trust to Secure the Assumption of the original mortgage. A Special Warranty Deed is signed by the Grantor before a notary and grants to the Grantee any and all interest in the property that the Grantor had, other than reserved interests. At this point, the Grantor no longer has any legal interest or ownership in the property but may still be liable on the original deed of trust and mortgage note. To put it another way, The Deed of Trust To Secure Assumption requires one party, the Grantor, to assume the full liability for any debt on the property, and provides the Grantee the ability to step back in to take over payment on the debt and other obligations of the original deed of trust to protect his/her interest. In such circumstances, the Grantor must repay Grantee timely for all of the debts or expenses actually paid by Grantee, plus any attorney’s fees and other costs that the Grantee incurs.
A common issue often arises as to how to keep the non-awarded other spouse from remaining liable for the mortgage and other debts or liens on the property. In very few instances will a mortgage company allow a release of liability of an original signatory to the mortgage without a full refinance. Even if the divorce decree states that the other party liable; the court order cannot force a lien holder to grant a release of liability. Therefore, you have a situation in which one spouse is awarded the property, but the other spouse or both spouses still remain liable after the divorce on the note and the obligations of the original Deed of Trust signed by the spouse(s). Defaults on such liability can result in bad credit reporting and a deficiency judgment if a foreclosure happens.
Deed of Trust to Secure Assumption
A Deed of Trust to Secure Assumption should also be executed by the Grantee as a contingent remedy to “help” protect the Grantor from any future liability on the mortgage. A Deed of Trust to Secure Assumption is a document that is signed as Grantor by the person who was Grantee in the Special Warranty Deed and names Grantee (Grantor in the Special Warranty Deed) as a Beneficiary of the Deed of Trust. The Deed of Trust lays out the terms of the parties’ agreement for enforcement if the Deed of Trust Grantor defaults on the mortgage. If the Deed of Trust Grantor fails to repay the mortgage lender or otherwise violates the Deed of Trust, the Grantee can pay any debts or obligations owed, then demand reimbursement from the Grantor within the time specified; if not paid, then the Deed of Trust beneficiary can then process a foreclosure on the property similar to any other creditor. Be aware that the only sure way to prevent negative credit reporting issues for the spouse not being awarded the property is to require a refinance by the party being awarded the property.
Another, but less common Deed and Deed of Trust option is to provide for the creation of an “Owelty Lien” in the divorce decree to provide for a lien that runs with the real property that must be paid off either at sale of the property or within a certain time period. This resolves a situation in which the house has equity, but there is not enough other cash accounts, retirement, or other property to allow an equal division. The party getting the real property in the divorce can agree to the imposition of an Owelty Lien against the property that creates a lien interest in the property rather than just a promise to pay. In Texas, the debt owed by the spouse being awarded the real property to the other spouse can be paid at sale or can be paid in a refinance without creating the situation of the refinance being considered a “home equity loan.” Home equity loans have higher debt to fair marked ratio requirements and generally have a higher interest rate than a non home equity loan.
The correct and detailed listing of property award in a divorce decree and the use of a Warranty Deed and a Deed of Trust to Secure Assumption or the use of an Owelty Lien and necessary notes and Owelty Deeds are complex issues that require the utmost care and therefore the use of an attorney is strongly advised. Mistakes in the award or documentation of a property award typically have a maximum of a four-year statue of limitation for the purpose of corrections and clarifications, sometimes less. For a more detailed explanation of this and other solutions, always contact an attorney who is experienced in the area of family law and/or real estate.
Gary Kollmeier is a Board Certified Family Law Attorney in Denton Texas and a member of the Denton County Collaborative Professionals. You can reach Gary at 940-387-8181 or through his firm’s website at www.KollmeierLawFirm.com.