Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
Does anyone know of any concerns to look for if a spouse has transferred interest to a spouse via a quitclaim deed? I saw a video that warned of this transaction. It suggest the grantor could still have interest. Almost like they gave equitable title, but retained legal title. I would just like to know if there is any red flags to look for in this type of transfer. I would like to assume if they did still have an interest the law firm would put them on notice of a foreclosure proceeding and said interest would be lost by way of the foreclosure.
First, I understand why you're trying to check title, just understand while you think you might be doing a title search, you're not, you're not running the abstract of title, and there are many issues that have been unmentioned here. Here is just one:
A couple gets a divorce, the wife gets the house and the husband is to pay her X dollars as part of the divorce settlement. This can only be found by reading the dissolution of marriage ordered by the court.
Husband coneys title by quit claim deed. Fine, the uses of that deed is proper in most jurisdictions, Texas does have some odd title carve out in title insurance, like not insuring mineral rights, but, whatever.
You check and you see it was a divorce. 99.9% of novice examiners don't read the decree.
Then the wife gets behind, the husband is still on the note, they go to foreclosure.
There is a prior lien! It's a judgment by the divorce court against the husband to pay x dollars, the decree is prior to the QCD and becomes a general lien ordered by a court.
You need a satisfaction of lien from the wife to clear that lien!
Another issue, a QCD grants equitable and legal title held, at the time the deed is granted. If the parties are still married, the next day, the grantor still has a marital interest and gains an equitable interest in the assets owned by the spouse and a legal standing upon the death of the spouse to legal title, depending on the distribution of the estate under state law. Just as Matthew pointed out, these tactics are used by amateurish credit dodgers, the transfer is a sham and the interests can be taken back or "clawed back".
Another matter missed, a court appointed administrator, for an adult, executing a QCD does not squash the claims of an incapacitated adult with heirs existing at the time the court finds the adult unable to act for themselves under state laws. So, who executed that deed and when the deed was made has a bearing on future title claims. There are situations where one may not waive or grant all of their rights.
At a foreclosure sale, my last issue is with title, that's because most title matters can be cleared up personally or, if needed, by partition of interests or by finding that claims of creditors are not pursued in a timely manner, or that statutory limitations apply and releases of liens were not filed properly. Simply take that into account in your bid price, if it's a great deal, title matters can be worked out.
Seems like the OP is passing on properties that don't appear to have clean title and in reality, he can't determine if title is insurable. If you're really concerned, have a title company issue a title commitment prior to the sale, repeat customers can get it for free, others might pay $50 if you can't buy it. There is no reason for investors to play abstract attorney. :)
A followup for all those out there dong their own searches would be, how many of you only do a current owner search when the previous current owner received the property via a warranty deed.
Robert I went through a divorce a while ago, ( Im assuming thats what this is in reference to) and my ex qife quit claimed the deed to me, however when I went to sale the property she still had to sign due the the mortgage having both signatures. I would ask to see the original mortgage and then find out about the laws of that state in regards to real property and divorce. Hope that helps.
I was looking for a rental home for a client recently. When we were talking about her credit, she mentioned that she had gone through a divorce a few years ago and did a quit claim deed to turn the house over to her ex-husband. I told her that a quit claim deed is a terrible idea because it takes away her ownership interest but does not take away her financial responsibility for the mortgage. Sure enough, the ex had been missing mortgage payments and her credit was shot. So I had a heck of a time finding her a rental. She had to pay a double deposit.
You should always start by reading the terms of the deed, regardless of the type of deed. The type of deed only dictates the extent of the grantor's liability. The terms of the deed will enumerate the type of interest conveyed.
If the property is in a community property state and they were still legally married at the time when the deed was signed, you should make sure it was transferred as sole and separate property. Otherwise, the former spouse may have to sign another quick claim deed.
@Account Closed What's the exact situation...are you looking to buy at a foreclosure auction, or are you foreclosing? It should be obvious from public documents of the wife was on the mortgage, in which case she'll automatically be served. Most lenders name and serve the spouse regardless.
I am looking at about 20 homes that are coming up for sheriff sales. Many of these have this situation. I am just trying to flush out any areas/ pitfalls of title searches. Many are pretty easy to follow, but then again many get too complicated and I just pass. I also see many with quitclaim deeds from loved one to loved ones. They also make me nervous.
I get confused on warranty deeds as well. I mean if crazy Eddy writes up a warranty deed I don't see how I can rely on them too much.
Generally, you don't need to look further back than the transaction where the borrower being foreclosed on, bought the property. Anyone "receiving an interest" after the recording of the mortgage being foreclosed on, will be SOL, and likely not even required to be named/served, as the mortgage was recorded, as they were acquiring sub 2. Anyone receiving an interest after initiation of the foreclosure is surely irrelevant. Just my opinion.
Thanks. I would also think no many bank would give a mortgage on a home, where there existed a senor lien, from a previous owner. Such as an unsatisfied mortgage a mom had. So if the current owner got an mortgage they also got a 40 year title search and the bank gave a mortgage that is in senor position.
If the bank is giving a mortgage, they usually have a title search done prior to giving the mortgage and any issues should be cleared up before they go on record.
In you scenario you are looking at lets say the mortgage was given in 2005 to a Husband and Wife and the title was taken by H & W. In the last ten years several things could have happened. There could be a divorce and so a title change or they could have put it in to a trust or transferred to their kids as part of an estate plan. Now it is 2015 and the mortgage company comes to foreclose. The mortgage company does a title search as part of the foreclosure and gives notice to all the parties it finds of record. All these changes don't really matter as the mortgage don't really matter as the mortgage is superior to them. If you buy at the foreclosure sale or from the bank later on you should be OK as long as the foreclosure was done properly. That is the thing to watch for.
(This is based on MASS law and your state may be different!)
There are a whole host of facts that could potentially invalidate the transfer. Transfers between spouses, especially in contemplation of an antecedent debt, may raise flags of "fraudulent conveyance", which could void the transaction and allow for creditors of the husband to claw back at the property.
Title companies in Texas will not insure quit claim deeds, and with good reason. They do not provide any "real" transfer of title and no warranty of title. The grantor of a quit claim deed is saying, "I do not necessarily have any interest in this property, but whatever interest I have, I give to you."
If there is a quit claim deed in the chain of title, you will have serious problems transferring the property with title insurance, and that makes the property less marketable.
I hear what you are saying, and I also see them used extensively between family members. I will also add that often the new owners get a mortgage on the homes regularly. Wouldn't the bank require title insurance.
Yes, the bank will require title insurance (lender's policy) and the title company will most likely insist that the grantor sign the new deed anyway, even if there's a recorded quit claim deed.
And remember that a lender's policy does not protect the buyer.
First, I understand why you're trying to check title, just understand while you think you might be doing a title search, you're not, you're not running the abstract of title, and there are many issues that have been unmentioned here. Here is just one:
A couple gets a divorce, the wife gets the house and the husband is to pay her X dollars as part of the divorce settlement. This can only be found by reading the dissolution of marriage ordered by the court.
Husband coneys title by quit claim deed. Fine, the uses of that deed is proper in most jurisdictions, Texas does have some odd title carve out in title insurance, like not insuring mineral rights, but, whatever.
You check and you see it was a divorce. 99.9% of novice examiners don't read the decree.
Then the wife gets behind, the husband is still on the note, they go to foreclosure.
There is a prior lien! It's a judgment by the divorce court against the husband to pay x dollars, the decree is prior to the QCD and becomes a general lien ordered by a court.
You need a satisfaction of lien from the wife to clear that lien!
Another issue, a QCD grants equitable and legal title held, at the time the deed is granted. If the parties are still married, the next day, the grantor still has a marital interest and gains an equitable interest in the assets owned by the spouse and a legal standing upon the death of the spouse to legal title, depending on the distribution of the estate under state law. Just as Matthew pointed out, these tactics are used by amateurish credit dodgers, the transfer is a sham and the interests can be taken back or "clawed back".
Another matter missed, a court appointed administrator, for an adult, executing a QCD does not squash the claims of an incapacitated adult with heirs existing at the time the court finds the adult unable to act for themselves under state laws. So, who executed that deed and when the deed was made has a bearing on future title claims. There are situations where one may not waive or grant all of their rights.
At a foreclosure sale, my last issue is with title, that's because most title matters can be cleared up personally or, if needed, by partition of interests or by finding that claims of creditors are not pursued in a timely manner, or that statutory limitations apply and releases of liens were not filed properly. Simply take that into account in your bid price, if it's a great deal, title matters can be worked out.
Seems like the OP is passing on properties that don't appear to have clean title and in reality, he can't determine if title is insurable. If you're really concerned, have a title company issue a title commitment prior to the sale, repeat customers can get it for free, others might pay $50 if you can't buy it. There is no reason for investors to play abstract attorney. :)
Great response. In your first example if the mortgage being foreclosed on is one the couple had gotten together, would've t that be senior to the divorce court lien. Another question about your first example. Woulde t the divorce court judgment and lien show up in the county records without reading the decree.
Now I am going to continue reading your response. Lol. Lots of info
I pass on titles which get too complicated just because it take too much time and there is a bigger risk I'll miss something.
How do I learn about the pit falls you mentioned, as well as all the others out there. It is something I need to learn in the long run. At least be good enough to to know how to risk asses a deal. I have bought around 30 foreclosure over the past 7 years, but am planning on ramping my buying way up.