Understanding the Transfer of Real Estate during Divorce

When transferring title and ownership to real estate during divorce, it is important to have an understanding of the various real estate deeds. When the title is not properly conveyed, problems can occur. During a divorce, title and ownership interest are very likely to change.  In this article we will discuss ways to transfer title and things to watch out for during a divorce that could affect title and ones ability to remove an exiting spouse from title and buy out the interest of the existing spouse.

Owelty lien.

Owelty liens are a type of deed that allows divorcing couples to divide the existing equity in the marital home. This action is commonly utilized in divorces to “buying out” the remaining spouses interest in a home.

The party giving up their interest in the home obtains a lien against the property through a divorce decree, called an Owelty lien.   In this case, a lien is not a bad thing, it is actually a very good thing.  The Owelty lien must be filed at the courthouse in the county records. When the party retaining their interest in the house refinances or sells the home, the other party is paid the value of their Owelty lien. This solution allows one person to obtain the full interest in the home while removing the exiting spouse from the mortgage, while also providing the exiting spouse with cash.Certified Divorce Lending Professional

Warning! Both parties need to plan and pre-qualify for a refinance if they wish to retain the property. Many times one spouse cannot qualify for the mortgage on their own. Without proper planning, BEFORE the divorce is filed,  the results could be devastating for both. Both spouses credit could be ruined because the retaining spouse cannot refinance and the equity cannot be divided without a sale. Contact Richard Woodward, your Certified Divorce Lending Specialist for your initial consultation and to plan your divorce equity division.

Learn more about Owelty Liens on our page here.

What is a real estate deed? It is a legal instrument that is used in real estate. It is always in a document format and it passes an interest from one person to another, especially in divorce cases. Sometimes the Deed is referred to as the vehicle of the property interest transfer. Deeds must be recorded in the courthouse or assessor’s office to make them fully binding in most states, but a failure to file them does not change the transfer of title. It just means that the Deed is not perfected.

A deed describes a private instrument employed in real estate transactions. It is a formal document that requires two parties- the executing party and the witness. The executing party consists of the grantor and grantee, or the transferor or transferee, or in a purchase transaction, the buyer and the seller while the witnesses are usually the signatories and a notary public.

Quit Claim Deeds

The quitclaim deed is a type of legal document which is usually used in real estate to transfer interest from the grantor to the grantee. Although other forms of real estate deeds only increase the interest of the grantor, the Quitclaim deeds give details about the interest of the grantor at the time of the execution of the deed but it does not certainly guarantee the standing of the grantor in terms of having a good title, or ownership of the property.

However, if a problem arises with the document or real estate in the future, the quitclaim deeds have no warranties and grants the grantee little chance to take action against the grantor. This particular feature of the quitclaim deed makes it quite unsuitable for the purchase of real estate properties from unknown sources. When the purchase of real estate is done between family members like form one spouse to another, the quitclaim deed can be quite effective, hence it is mostly used in divorce cases. However, an Owelty Lein is preferred in divorce cases as it allows for more lending flexibility and lowers costs.

Uses of Quitclaim Deeds:

  • Adding or Removing Spouse from Title, quitclaim deeds are usually used for this purpose. It does not matter whether the addition results from a divorce or a marriage, any real estate owner can engage the quitclaim deed in adding or removing a spouse form the title of any property.
  • In Transferring Real Estate to an LLC or Corporation. With a valid quitclaim deed, corporate transfers can be done between closely related entities. The usage of quitclaim deeds in affairs are becoming more common like the holding of real estate in the protection of LLC’s and Corporations
  • Real Estate Transfers Between Family Members. Just as we have established, Quitclaim deeds can be used in transferring real estate between family members, it can be between parents and children, within siblings or any variety of closely related members.
  • Transferring Real Estate To A Trust. As with corporate transfers of real estate, transfers to a Trust are equally common. Family planning that deals with property meant to carry on through generations often involves an initial transfer from a family member into a trust.
  • Clearing off a Cloud in a Title for Title Insurance. Through the process of insuring titles to grantees, the title companies might be unclear about a person who might or might not have an interest in the property but might be a potential threat in causing a break in the title chain. Such individuals will be asked by the insuring company to “quit claim” their interest in the property before issuing the title insurance.
  • Also, prior to funding a loan, the grantors may ask a related person who might not be on the loan to complete and record a deed quitclaiming their interest.

Let’s talk about the other types of real estate needs.

Warranty Deed (special and general warranty deed).

Although there are several real estate deeds, the general warranty deeds provide the most protection to the buyer. With this type of deed, there is an assurance that the seller has full ownership of the property and all right to transfer it to the buyer. Should in case futuristic issues occur pertaining to ownership, the warranty deed provides an avenue for the buyer to contact the seller for a resolve.

Although other real estate needs might be limited to the time that the seller owned the property, the special warranty deed is not limited; rather it extends back to the earliest owners of the property. It also reflects information that ensures that the grantors did not encumber the property in any way that prohibits its transfer.

Correction Deed

Correction or corrective deed, deed of correction, or deed of confirmation is another real estate deed mostly used to correct a record (public record) which cannot be directly adjusted. For the correction of minor mistakes, such as misspelled or incomplete names, missing or wrong middle initials, and omission of marital status or vesting information, a Correction deed is usually utilized.

Grant Deed

A grant deed can be described as a legal document that conveys the rights of ownership of a real estate property form one entity to the other. What makes it different from other deeds is that it contains no express warranties. A grant or bargain and sale deed describe the grantor as well as his title and property possession.   It usually takes the format “ABC grants and releases,” or “XYZ grants, bargains, and sells,” and is mostly dictated by statute.

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