Every year I seem to have the year of something. One year it was the year of the cracked heat exchanger, or termites or structural issues. Recently, I had issues with one seller client and one buyer client regarding their divorce or separation.
In the case of the seller, they did not have a lawyer involved in the process; they did all of the paperwork themselves. I was told after asking repeated questions, that all of the paperwork was in order and recorded properly. Prior to closing we found out that the final divorce paperwork had not been recorded. This meant that my clients former wife had to be tracked down to sign all of the documents. This was not the most pleasant task even after I had warned the client that there could be issues if things were not done correctly.
In the case of my buyer client, she was separated and she wanted to buy a home. If she wanted to buy and not have her soon to be “X” have rights to the property, she needed a Free Trader Agreement.
After these experiences, I asked an attorney to write something for me on this topic. I have also prepared a short checklist to use with clients to help give them an attorney direction, if needed. I hope this information is helpful to you.
Considerations When You Are Selling or Buying A Home When You are Separated or Divorced
The focus of this article is limited to discussing a small number of matters to consider in the sale of your home when you are separated or divorced. The problems that are often encountered for Sellers who are attempting to list the home or close on the sale when they are separated or divorced may, at times, be particularly frustrating. It is important that you realize that the closing attorney must consider North Carolina estate, domestic and contract law to determine if a separated, non-separated or non-owning husband or wife will be required to sign either the conveyance deed (if property is being sold) or the deed of trust on the property for the Buyer’s lender to issue a mortgage. In the case of closing on a refinance of an existing mortgage on the marital home, the same rules apply.
Points to Consider if You Are Separated
1. The Role of Estate Law. North Carolina Estate Law provides that a spouse may dissent from the Will of the other, if the deceased Husband or Wife has not provided a minimum statutory share of his or her estate to the surviving spouse. Included in the law is the right for the surviving spouse to dissent from the will to claim a life estate in all real property that the deceased spouse owned at the time of death and this right continues even if the husband and wife are separated. These statutory marital rights result in a legal requirement that, prior to a divorce, in order to sell any real property owned by the parties both husband and wife must sign the conveyance deed transferring the property to the Buyer. This same requirement applies even if the parties are not separated, and only one of the parties (husband or wife) is the actual record owner of the property.
2. The Role of Legal Documents. There are only limited exceptions to the requirement for a Husband’s or a Wife’s signature on either (1) a contract for the sale of the home; (2) on the conveyance deed to transfer the home; or (3) on a deed of trust if purchasing a new home or refinancing an existing home. The most important exception to this rule is when the public record provides notice by a recorded instrument that the non-owning husband or wife has released all common law and statutory rights in the other’s real property such as in a Pre-Nuptial Agreement. A separated husband or wife can also transfer his or her marital rights to property by using this type of release language in an actual conveyance deed where one of the spouses conveys his or her marital right to the property to the other through the deed. If this type of deed has been recorded it will allow the record owner spouse to sell the property without the signature of the other. If the language is not specifically placed in a conveyance deed, there may be a contractual Separation Agreement, a court-ordered Separation Agreement, a Memorandum of Separation or a Free Trader Agreement that specifically releases all common law and statutory rights of the separated and/or non-owning spouse to the real property owned by the other spouse. Remember, the use of a recorded Memorandum of Separation is often the best way for separated spouses, who are selling real property or buying real property, to avoid the signature requirement of the other spouse. You should consult with your domestic attorney to make certain this is done as part of your legal work in the separation or divorce process.
3. The Role of the Title Insurance Company. Over the last few years, at the time of purchase, the title insurance company being used by the closing attorney may be willing to insure the lender over the lien interest (deed of trust) without the signature of the non-owning spouse, by taking the position that it is “purchase money” being provided by the lender. This concept is too detailed to discuss as part of this writing. However, if this is important for you as a Buyer you will need to consult with your closing attorney to find out if you can avoid having your spouse sign the deed of trust. Of course, as previously discussed, if there is already a valid recorded Memorandum of Separation, or other legal document releasing all marital rights the problem is resolved.
The Final Questions or Points to Consider if You are Separated:
1. Do you have a Separation Agreement or legal document that releases all common law or statutory rights in real property? If not, do not buy or sell real property until such time that your separation is finalized with a divorce. As long as you are legally married, even if you are separated, your spouse has marital rights to your real property unless you both have signed an agreement to release your marital rights.
2. Are both spouses the current record owners of the property or is only one spouse a current record owner? If you are already divorced, was the property that you are selling previously transferred into your sole name by a conveyance deed? If not, your divorced spouse will need to sign the conveyance deed when the property is sold and typically the closing attorney will be concerned as to the instructions for the distribution of the proceeds to the Seller. C heck with your domestic attorney if you are not sure that there is a legal agreement, document or court order in place that specifically states the real property rights of each spouse. The closing attorney will often need to review the terms of your settlement where it states who gets the proceeds from the sale of the home, or perhaps obtaining a note from the domestic attorneys instructing how to distribute the closing proceeds. If there is no controlling document or if the domestic matter remains unsettled; the proceeds of the sale can be held in an attorney’s trust account until such time that an agreement has been reached by the separated or divorced parties.
3. Naturally, the goal of your realtor and/or the closing attorney is to help you with a successful sale or purchase so that you can move forward with your life. Therefore, if you have a recorded Memorandum of Separation or Free Trader Agreement, that was signed by both parties and notarized, or the property was conveyed into your sole name where the conveying deed released the common law or statutory rights of your separated spouse in the property being sold it will be of great help to your realtor to provide this document at your first meeting.
Here is the checklist!
Questions If A Client Is Separated or Divorced
•1. Do you have a separation agreement?
•2. Is the separation agreement signed by both parties
•3. Is the separation agreement recorded in the county
you resided in at the time of the separation?
If yes, can you supply a copy of the first page of the
Recorded agreement that indicates the recording
Information (book, page reference information)?
•4. Is the Deed to the property in your name only?
•5. Do you have a Free Trader Agreement?
If yes, can you supply a copy of the page of the Separation
agreement that deals with the Free Trader Agreement?
Selling a home is stressful enough but when the process is compounded by divorce or separation, the stress level can increase – especially if the split is acrimonious – and emotion and a desire to conclude the matter – can create a legal nightmare. If other financial problems cloud the potential sale, such as impending foreclosure or the need to pursue a short sale to fulfill all financial terms of the settlement, both parties absolutely need to consult a real estate attorney in order to prevent future loss.
Checking with a real estate attorney when negotiating a contract is always a good idea. When divorce or separation is involved, it is mandatory. At Team Jodi, we can put you in touch with an excellent real estate attorney if you don’t have one.