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The Use of Special Warranty Deeds and Deeds of Trust to Secure Assumption in Texas

Posted on | January 28, 2011 | 3 Comments

When parties to a divorce own real property, typically the “marital residence”, one of the parties is usually awarded the property and any debt associated with the property.  Many final divorce decrees will award one spouse the residence and make that spouse responsible for the note, or mortgage, on the residence.  The problem that often arises is how to keep the other spouse from remaining liable for the mortgage or other liens on the house.  Due to the ups and downs in the economy, especially the real estate finance industry, many mortgage companies will no longer just release a party from liability on the mortgage, even if the divorce decree makes the other party liable.  And the fact is that the Texas courts cannot force the banks to grant such a release.  So many parties end up still liable on the mortgage for a house they no longer own.

A solution to this problem is the Special Warranty Deed used in conjunction with a Deed of Trust to Secure Assumption.  The Special Warranty Deed is used by the party giving up title to the house (Grantor) to assign all legal title in the house to the party receiving the property (Grantee).  Thus, the Special Warranty Deed is signed by the Grantor in front of a notary, and grants to the Grantee any and all interest in the property that the Grantor had.  At this point, the Grantor no longer has any legal interest or ownership in the property.  We could stop here if we knew for certain that the Grantee would make all of the payments on the mortgage and would do some in a timely manner.  But since we can never be so certain that the Grantee will be able to make the payments, a Deed of Trust to Secure Assumption must also be executed to protect the Grantor from any future liability on the mortgage. Remember that a Special Warranty Deed does not affect your liability to the third party mortgage company so if your name is on the note-you are still liable!

The Deed of Trust to Secure Assumption is a document that is signed by the Grantee (party receiving the property and liable for the mortgage) and names Grantor as a Beneficiary.  The Deed of Trust lays out the terms of the parties’ agreement for enforcement if the Grantee defaults on the mortgage.  If the Grantee fails to repay the mortgage lender or the Grantor, the Grantor can foreclose on the property just like any other creditor.  The Deed of Trust requires one party, the Grantee, to assume the full liability for any debt on the property, but provides the Grantor the ability to step back in to take over payment on the debt to protect his interest.  In such circumstances, if Grantor has to pay the lender for any of the debt that Grantee assumes, then Grantee must repay Grantor for all of those expenses, plus any attorney’s fees and other costs that the Grantor pays.

The use of the Special Warranty Deed and the Deed of Trust to Secure Assumption is one of the solutions to the problem of one spouse remaining liable on the mortgage even after a divorce.  For a more detailed explanation of this and other solutions such as one of the parties refinancing the property, always contact an attorney who is experienced in the area of family law or real estate.  If you have questions, you can contact The Wright Firm, L.L.P. at 972-353-4600 or visit our website at www.thewrightlawyers.com.

Comments

3 Responses to “The Use of Special Warranty Deeds and Deeds of Trust to Secure Assumption in Texas”

  1. D
    November 25th, 2012 @ 8:57 pm

    This was really helpful. It’s not easy to find an explanation of these documents that doesn’t require a law degree. Thank you.

  2. Carrie Brown
    January 22nd, 2013 @ 8:23 pm

    So in the case where you are now liable for a note on a house you have no rights to, and are unable to purchase a new home because of the debt to income ratio, what do you do? Do you have to wait out the 30 year note?? I presented the ex spouse with a free means of refinancing without my name and she refused. Do I have any recourse?

  3. pwrightfam
    January 23rd, 2013 @ 9:48 pm

    Hi Carrie,

    Thank you for the post. We see this often in a divorce context where one party gets the home and both parties names appear on the note. The problem is that unless the party will refinance, the court orders them to refinance, or that the property be sold, there is really not a good alternative. Assuming you are in Texas, we would need to look the decree and see what the provisions say about the property. Many times the individuals cannot refinance and they only true way to solve the problem is to order the sale of the property in a divorce case. However, lately we have seen many people who have more debt to equity in their homes and even asking the court to sell the property may not be a good answer either. Shorter answer, if in Texas, give us a call and let us look at the Decree. If out of state, give your attorney a call or call an attorney in the state where the divorce case took place.

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