In a divorce proceeding, a separating couple sharing a real property—usually referred to as the “marital residence” may agree to divide and sell the property and split the proceeds and all of their shared assets, or sometimes the parties agree or one party is awarded the marital residence, and all debt associated with it.
When one party is awarded the marital residence or the parties agree that one party will keep the marital residence or any real property, the party keeping the property maintains the responsibility for the note (mortgage) on that property. And while these terms may seem clear-cut, it’s not unusual for problems to come up.
An example of a problem that turns up before it’s too late involves liability issues over the property, specifically, how to keep the other spouse from still being liable for the mortgage and other liens on the former marital residence.
Because of a volatile economy and a recovering real estate finance industry, several mortgage companies will outright refuse to release someone from mortgage liability based on divorce, even if the divorce decree clearly states that person is no longer liable for any loans on the property.
Furthermore, Texas law indicates the courts don’t have the power to force banks to allow such a release of liability. As such, it’s common for divorced spouses to still be liable on the mortgage of a house they technically no longer own.
Enter the Special Warranty Deed and Deed of Trust to Secure Assumption
This is where the Special Warranty Deed, combined with a Deed of Trust to Secure Assumption, comes in.
Special Warranty Deed Explained
The spouse giving up the title of the property, also known as the Grantor, uses the Special Warranty Deed to transfer all legal title on the house to the other spouse awarded with the property, known as the Grantee.
The Grantor affixes his signature on the Special Warranty Deed in front of a notary, effectively granting to the Grantee all interest in the property the Grantor had. Simply put, the Grantor gives up all ownership and legal interest on the house.
Provided the Grantee will commit to making all payments on the mortgage in the future, doing so on time, every time, the Special Warranty Deed should be enough. But even if you can trust your ex-spouse’s promise to take care of all future payments on the loan, you still shouldn’t risk putting your financial in someone else’s hands. You can never be sure the Grantee will make all payments, not necessarily out of malice, but possibly due to financial instability.
To prevent any further issues, the Grantor can execute a Deed of Trust to Secure Assumption as a means of protection against any future liability on any loans against the house.
One flaw of the Special Warranty Deed is how it doesn’t affect your liability on a mortgage from a third party company—you’re still liable for missed payments if your name is on the note.
Deed of Trust to Secure Assumption Explained
The Grantor can execute a Deed of Trust to Secure Assumption, a document signed by the Grantee to confirm the Grantor as a Beneficiary.
The Deed of Trust outlines the terms agreed upon by both parties as enforcement should the Grantee default on the mortgage. If the Grantee fails to repay the Grantor or the mortgage lender, the Grantor can choose to foreclose on the house like any other lender. The Deed of Trust puts responsibility on the shoulders of the Grantee to assume all liability for any debt against the property, but allows the Grantor to return and take over payments on the debt to protect his interests.
In cases like this, should the Grantor pay the lender for any of the debt assumed by the Grantee, the Grantee must repay Grantor for all expenses, including lawyer’s fees and other additional costs incurred by the Grantor.
The combined use of the Special Warranty Deed and the Deed of Trust to Secure Assumption is one of the best solutions to circumvent the issue of one spouse being held liable on mortgage payments after dissolution of their marriage.
To learn more about these deeds and other specifics about Texas divorce law, such as property refinancing, talk to the legal team of Lyttle Law Firm today. Contact us at (512) 215.5225 to schedule a consultation.