by Timothy Raty, DocuTech Compliance Specialist
A special type of ownership in real property is created when it is conveyed to a married borrower. In most states, this type of ownership is known as a “tenancy by the entirety,” wherein both the borrower and the borrower’s spouse obtain a concurrent ownership in the property if the four unities of joint ownership (time, title, interest, and possession) are present and the spouses do not intend to create another type of joint ownership (e.g. a tenancy-in-common or a joint tenancy).
In a minority of states, a similar (yet stronger) type of ownership is created under the “community property” rule. Under this rule, property acquired by one spouse during their marriage is inherently considered the property of the other (with some exceptions), so if real property is conveyed to a married borrower, his or her spouse automatically gains an interest in the same property.
These types of ownership can cause problems for mortgage lenders in enforcing the terms of a mortgage. Unless a borrower’s spouse signs certain of the loan documents (e.g. the security instrument), a lender may only be able to foreclose upon the borrower’s ownership share of the property and not the spouse’s, thus creating a tenancy-in-common between the lender and the borrower’s spouse. Needless to say, this will hamper the lender’s ability to sell or convey their new interest in the property to anyone (other than perhaps the original borrower).
To further complicate matters for lenders, these types of marital property rights have, over the recent years, been extended in some states to domestic partnerships. Due to the uniqueness and novelty of such arrangements, DocuTech has been providing an “Addendum to Loan Application” (Cx13441) for our client’s benefit. This document explains to borrowers the domestic partnership laws of the state in which the subject property of a loan is and that, if they have a domestic partner, that partner may have an interest in the property and would be required to sign all the document necessary for a lender to practically enforce the terms of the mortgage. After this explanation, the borrower is asked to identify any person who may have an interest in the property, thus helping the lender identify which individuals need to sign what documents.
DocuTech has also been providing this document in states that recognize same-sex marriages for the same reasons. Even though same-sex marriages are, legally, no different than traditional marriages, they are relatively novel in the United States and, for this reason Cx13441 is provided for loans secured by property in those states which recognize same-sex marriages and it provides a short explanation of the effects of that state’s same-sex marriage laws.
On November 6, 2012 the general electorate in three states voted either on initiatives or referendums concerning the legality of same-sex marriage. In Maine, voters approved by a 5.4% margin (with 97.7% of precincts reporting) “Question 1: Citizen Initiative,” which will amend several provisions of Maine’s Revised Statutes, but particularly adding a new section recognizing marriages as a “recognized union of 2 people.” (Me. Rev. Stat. Ann. tit. 19-A, § 650-A). These changes will take effect 30 days after the Governor of Maine certifies the official election results.
In Maryland, Chapter 2 of 2012 (H.B. 438) was approved by Governor Martin O’Malley (D) on March 1, 2012, but was held pending a referendum that was approved by the general electorate by a margin of 4.2% (with 99.8% of precincts reporting). This Bill amended two sections of Maryland’s Family Code, one of which is Md. Code Ann., Fam. Law §2-201(B) so that it now states that “only a marriage between two individuals who are not otherwise prohibited from marrying is valid in this State.” These amendments will go into effect on January 1, 2013.
Finally, in Washington, Referendum 74 was approved, thus upholding 2012 Wash. Legis. Serv. ch. 3 (S.B. 6239) which was approved by Governor Christine Gregoire (D) on February 13, 2012, which had been pended until the results of the referendum. The referendum was approved by a 4% margin (with 65.2% of precincts reporting).
This piece of legislation amended several provisions of Washington’s Revised Code, but particularly §26.04.010(1) to recognize that “marriage is a civil contract between two persons who have each attained the age of eighteen years, and who are otherwise capable.” It also amended §26.60.010 to allow for domestic partnerships between two people (regardless of sex) who are at least eighteen years of age, but one of whom must be at least sixty-two years of age.
Due to these changes, DocuTech will be providing Cx13441 for loans secured by property in Maine and Maryland by the time these new laws take effect. It has been printing for loans secured by property in Washington, due to Washington’s domestic partnership laws, but will be modified to accommodate the new law concerning same-sex marriages. DocuTech, as always, will continue to make sure that our clients are in compliance with all applicable laws and are helped in streamlining their lending processes.