Real Estate: February 2015 Archives

The bottom line on this question is always, "Whatever the courts say." Divorce law is complex, and different from state to state, and even when you think you've got a clear message in the law as written, the courts may interpret it differently, or there may be precedent that says otherwise, or even just some overarching concern you are not aware of. Even if the law is clear, it can usually be gotten around by the agreement of the parties. Consult your attorney.

With that said, there are a few rules of thumb to go over, valid in broad for most states in most situations.

Real Estate is usually owned by both partners in a marriage equally, even if one spouse acquired title prior to the marriage the second will be added by default when the marriage happens. The only thing that is usually held separate are inheritances - things that were inherited by one spouse or the other from relatives, and even those can often become joint property. Sometimes gifts to one spouse can also be held separate. One of the phrasings your learn from reading title reports are is "John Smith, who acquired title as a single man, and Jane Smith, husband and wife as joint tenants." This tells you John bought it before they were married, and Jane got added to title upon marriage by the effects of the law.

There are trusts and the like to frustrate this from happening, and most states have rules and law permitting them, but you have to talk to the lawyer, get the trust created, and most importantly, as it's the step that is most often omitted, transfer the assets to the trust in a timely fashion. I don't know how many folks I've seen who spent a couple of thousand dollars creating a trust and then didn't transfer the assets to it. Every penny they spent on that trust was wasted money.

Now, if Jane does not wish to be added to the property title, she may quitclaim it back to "John Smith, a married man as his sole and separate property." However, quitclaim deeds have this curious limitation in many states (California among them) that they only function with respect to the interest you have in the property as of the time you sign them. Since the new spouse has not yet been given the claim upon the property until the marriage takes place, the quitclaim cannot be signed until after the marriage in order to accomplish the desired goal, as Jane has not yet acquired the interest in the property. Jane can say she'll sign it after she's married, but if she changes her mind, that's a whole different legal struggle. If she signs it before the marriage, then since she subsequently acquired a claim to the property through the marriage, she now has an interest in the property through the eyes of the law. Let's even say John and Jane are ninth cousins, the only surviving family inheritors, but for whatever reason Jane quitclaims the property to John, but then they later get married. Jane now has a married woman's legal interest in the property. The quitclaim only applies to Jane's interest in the property at the time of the quitclaim, and has no effect upon any claims she may acquire later. The only way I am aware, in general, to deed away any rights you may acquire in the future is with a Grant Deed, and each state has its own laws as to how this may and may not be accomplished. On the other hand, a Quitclaim is a handy document if you may have the intention of acquiring some interest in the property back at a later time, as it generally doesn't make, for instance, buying the historic family homestead back from your wastrel brother problematic.

New Example, different situation. Now suppose John and Jane Jones get divorced, and the property was held jointly. Both John and Jane still have an interest in the property, and continue to hold an interest, even if the court orders them to sign a quitclaim, until they actually have done so. This is why it is better to get a court award of actual title rather than a court order for the other spouse to sign a quitclaim. Unfortunately, for some reason, most divorce courts are unwilling to award actual title rather than order the ex-spouse to sign the quitclaim. So whoever gets the title or possession is not able to do anything with the property without the ex-spouse's approval, unless and until that ex-spouse signs the quitclaim or the court awards the spouse in possession with clear title. I could tell stories of ex-spouses that disappeared, or pretended to disappear for years leaving the ex-spouse in possession unable to sell, unable to refinance, even unable in some circumstances to sign a valid lease. Not infrequently, the ex-spouse pops up years later wanting a better deal (that is, more money) as inducement to sign the quitclaim deed.

Until the ex-spouse signs the quitclaim, title companies will not insure either loans, whther in support of refinancing or a sale, or actual sales transactions. No lenders policy of title insurance, no loan (in most states), and that kills the refinance, or the loan financing any sale. No policy of owner's title insurance either, and I certainly won't pay my money for such a property, and advise my clients in most stringent terms not to do so.

Let's say that the ex-spouse has signed the quitclaim but is still on the existing loan, which was taken out while you were still married. This isn't really a problem for sales. In order to refinance, or deliver clear title on a sale, that loan needs to be paid off. The lender doesn't care how it gets the money, or from whom. That ex-spouse can drop off the face of the earth once the quitclaim is signed, and it really doesn't make any difference. Once they are out of the legal picture, they might as well be dead as far as title to the property is concerned.

On the other hand, if both people signed for the loan, they are both still responsible if they get a divorce. It's not like some of the mortgage is His and some is Hers - it's all Theirs. Because this is true, sometimes ex-spouses also get their credit hit when things like a short sale subsequently happen, or foreclosures. To guard the ex-spouse who is giving up the rights to the property from this happening, many times the divorce court will order the ex-spouse who is retaining possession to refinance in order to remove the spouse who no longer has a legal interest in the property from future liability on the debt. Furthermore, until this happens, it hits the ex-spouse in the debt to income ratio, as they are still obligated to make those payments and they show up on the credit report. This often makes it impossible for them to buy a property for themselves, even if they can otherwise afford to do so.

Many times, the court will order the ex-spouse retaining the property to buy the relinquishing ex-spouse out of the property, to give them some money or other goods in exchange for their interest in the property.

Often, especially if both spouse's incomes were used in order to qualify for the loan on the property, the remaining ex-spouse will not be able to qualify for the necessary loan on their own. In this case, the smart thing to do is usually sell the property. It is a real issue that because many former spouses are delinquent in their payment of alimony and child support, the lenders want to see a certain history (usually three months) of these items being paid before they will allow the income so generated to be used to help qualify the remaining ex-spouse for the new loan.

Keep in mind that all of the above are simply common concerns and happenings, and may have nothing to do with the situation you find yourself in in a divorce. I'm just covering the major basics that any layperson should be aware of. Consult your attorney for real feedback of how the law and legal precedent in your area apply to your situation.

Caveat Emptor

Original here

It may surprise you to learn that there is a way to lose part of your property without selling it, against your will, and without the government condemning it for public use. This is the doctrine of adverse possession, and it has a history that is literally older than the United States, going back to English common law. Adverse possession flows from the Doctrine of Laches (equity), where a party, which would be the previous legal owner in this case, has lost its rights by failing to defend them. And this failing really is a pretty extensive failing, as you'll see in a moment - basically going to sleep like Rip Van Winkle for a goodly number of years. It isn't like today you've got a valuable property that you're using, and tomorrow you're dispossessed by some thief who snuck in during the night.

There are five elements to a successful adverse possession suit:

1) Open and notorious: You have to have openly used the property in question, in a manner observable to the general public, and in particular, the previous owner.

2) Actual possession: You must have occupied and used the property in question. Raised crops on it, improved it by building or improving something artificial on it, lived there, etcetera. Paying taxes on the property can be helpful to your case, but it isn't proof, and it doesn't prove you were in possession - actual physical control of the property concerned. You may have believed it was yours, which is why you paid taxes, but the legal owner had an equally reasonable belief: legal title. You have to show that you were in physical possession of that property.

3) Exclusive: You have to use it to the exclusion of the theoretical owner. No sneaking in only when they are not there. They must be absent - they cannot have been in possession, in control, or have been using the property themselves. If they come back and use the property, evict you for a while, etcetera, the time period starts all over.

4) Hostile and Adverse: You can't be using it by permission, otherwise all landlords would periodically have to evict every tenant. If you're paying rent, or just have permission to use the property, it all goes out the window, as that shows that the legal owner wasn't neglecting their rights. Someone using it by permission might get an easement by right of long use; they won't get fee title to the property.

5) Continuous holding period for a given number of years. This period varies from state to state, and can vary even within the same jurisdiction with differing circumstances. I've heard of times as short as seven years, and as long as twenty. Check with a lawyer in your area for what period applies to your situation. For that matter, check with a lawyer in your area on anything in this whole article. I'm not an attorney - I'm just alerting the public to the existence of adverse possession and its general characteristics.

Adverse possession applies only to land actually taken. Just because the legal owner ceded use of some small piece of the property doesn't mean you get the whole thing. Just because you have a successful adverse possession for a fence three feet from where the prior legal property line was, does not mean that you're going to get possession of an entire parcel.

Fence lines are the most common adverse possession suits. Either the owner of the property puts the fence inside their own property line, and the owner of the adjacent parcel takes over the land outside the fence, or the owner of the other property puts the fence line within the neighbors property in the first place. In either case, there's a pretty easy visual case to be made for who was in control of that land, who had possession, and that it was exclusive. That it was hostile and adverse is fairly easy, unless there's some written documentation that the legal owner gave permission. This leaves only the fifth condition, continuous possession, for the required number of years.

This has implications for buying property. If what you see on that fence line doesn't match the legal boundary, then there may be a legal case to be made that the fence line is what you get. Whether this is a good thing in that you can attach more property to what you are legally buying, or a bad thing in that you're not getting as much as you might think, the case can be made. In any case, consult an attorney.

It also has implications for selling a property. If you advertise that the property is a quarter acre, and someone legally removes some amount from that within some period after the property sells, they may have recourse upon you if they bought partially based upon your representation that the property was a quarter acre. It wasn't, really. I find it difficult to believe anyone really would sue over a fence line making their 10,890 square foot property into a 10,700 square foot one, especially when the fence line was clearly visible the entire time, but it doesn't have to be the real reason they want to do such. It might merely gives them a legal excuse for whatever their real issue is.

Another thing that adverse possession does not apply to is use of force. You cannot gain title by holding the owners captive at gunpoint, no matter how long it is. This includes armed invasion. Were the territory gained in the Mexican-American War ever reattached to Mexico, it is my understanding that according to this doctrine, the landholdings then extant would be re-asserted, even under US law, unless they were actually sold, either by the government (i.e. Gadsden Purchase) or the private entity that held title. If Antonio López de Santa Anna personally owned your property once upon a time, and the US Government took it over after the war as spoils, his heirs might still own it if they ever found out about it and filed suit. One hopes you get the idea.

Winning or losing an adverse possession case can also have property tax implications. If years ago, you bought an 8000 square foot property, and lose 2000 square feet to adverse possession, at least you'll probably get some property tax relief out of it. If you attach that 2000 square feet to your existing property through successful adverse possession, you might well get a tax bill for it.

Adverse possession is a detailed legal field with complex rules I don't pretend to understand in full, and those rules change from state to state. But it is real, and it is successfully used to take legal title to land pretty much every day.

Caveat Emptor

Original article here

This has nothing to do with the Homestead Act of 1862 that encouraged settling the western United States.

A Declaration of Homestead basically protects your equity. In many cases, you may not even have to file a declaration to receive the benefits, but whether this is so is complex. If you file, you remove the ambiguity.

A homestead declaration may only be filed upon a primary residence, and only if you own it. Rental property, second homes, and property held for business purposes is not eligible. Law between the states varies, as does the exemption amount

How it works is pretty consistent. First off, it protects no equity arising from dates prior to declaration. If you are in one of those situations where you have to explicitly declare homestead instead of it happening on its own, you have to actually declare it before the incident happens. You get in a traffic accident that's your fault, and go out and declare homestead the next day, it won't help you protect your equity against that particular lawsuit.

Note that it protects your equity, not your asset value. If the home is worth $500,000 (as is often the case in San Diego) but you owe $400,000, you have $100,000 of equity. How much it protects is dependent upon your state law and exact situation. Default protection in California is $75,000, but it can be up to $175,000 if you or your spouse are 55 or older, disabled, or have income less than $15,000 per year. Even with property values having fallen of late, the amount protected seems to be pretty minimal. If the legislature doesn't update the law, Homestead in California may soon fall under the heading of "pointless gestures," because it doesn't protect enough to be worth doing.

It can also prevent sale of the property in some, although not all situations. In California, the judgment creditor usually has to get a court order, after they have won the judgment, in order to sell the property. I'm not a lawyer, so I'm not going to presume to advise anyone on what those circumstances are. Consider this article merely a "heads up" - you need to consult a legal professional for all the details and how they apply to you.

Now, there is some question in some minds as to whether a homestead declaration inhibits enforcements of sale under Deed of Trust, so many lenders will require an abandonment of homestead prior to funding their loan. You can always re-declare as soon as the loan funds, anyway. I know that some folks have fought this issue in court, costing the lenders money to pay their lawyers, so it's hard to blame the lenders for requiring it. You can refuse to do this, but they can also refuse to give you the loan. It's their money, and they are the arbiters of how they lend it out.

Caveat Emptor

Original here