Subject to problem causing due-on-sale - Posted by Marc Donovan

Posted by Marc Donovan on July 21, 2005 at 17:20:20:

That’s what I wanted to hear.

Subject to problem causing due-on-sale - Posted by Marc Donovan

Posted by Marc Donovan on July 20, 2005 at 19:48:00:

Hello fellow creonliners. I have posted a lot of advice on this board and Im now in need of some advice from the pros here.

I am being sued by the ex-husband of the seller. He is claiming he has title interest even though his divorce decree states that he must turn over title to his wife. My attorney/title company says he has no case and I agree, but the title insurance underwriter’s attorney says we will have problems with the judge. Here is a piece of his latest letter to me:

I am of the firm opinion, though, that the nature of the transaction may cause us problems with the judge. I respectfully disagree with your opinion that the transaction is proper, in the sense that the mortgage loan is presently in default (the lender just doesn’t know about it). While buyers can take “subject to” certain encumbrances, a
buyer cannot assume a non-assumable loan. Also, with respect to the husband’s credit, I did not mean that you have damaged his credit–I don’t doubt that the loan is in good standing from a payment standpoint. I simply meant that I am certain that the judge in this case will have a
problem with the property being sold and you, the buyer, continuing to use the husband’s credit.

I think he’s off base here. Dont you?

The husband never deeded the property to his wife (violating the divorce judgement) and his name is still on the note. The divorce judgement stipulates that if the ex-wife gets behind more than three month in payments, the property will be sold and the note paid off. Obviously the wife does not have the ability to do this since she has already sold the property to me.

Our attorney is cross-claiming for quiet title, so this may be an issue, but the original complaint does not bring up this due-on-sale issue. But I think the other party can bring new defenses when cross-claimed.

The title insurance underwriter’s attorney (our attorney) is telling us that we need to refi this loan to get out of this. My point is that if I tried to refi a property that has a lis pendens filed and a clouded title, I would need to go to a secondary lender and would pay a lot of extra dough. I think they owe us a clean title before I go talk to a lender.

Its really their problem right? I am protected since I paid the premium at closing.

And the guy is wrong - I think. As long as the lender does not call the loan (its a 10% loan - not gonna happen) there is no basis for a claim from the husband.

Do I just ignore his complaints and see how it goes, or do I let him know what the defenses are? I think he is just trying to get us to fix his employer’s problem. Am I correct?

Thanks for your time.

Re: Subject to problem causing due-on-sale - Posted by jafon2k

Posted by jafon2k on April 13, 2006 at 02:51:44:

I am interested in knowing what became of this situation?
I agree that this now appears to be your title companies problem, but insurance companies may only protect against recorded items to title.

My opinion is as follows:
The husband has an argument for two reasons ?

  1. anyone can file a lawsuit to have there arguments heard.
  2. You have to be intimate with the divorce proceedings to know where you stand.
    a. Was the wife required to compensate the husband for his share of the property?
    Even if the husband was not on title to the property some states have communal laws, i.e. New Jersey, I believe
    b. Was title to be then transferred to wife at a closing after the husband was compensated for his portion?
    In many divorces the property is refinanced to buy the other side out and hence take the other party off of the mortgage. The court justs rules on who would be the retainer of (or get) the property. If the wife did not perform on a closing she may have not fulfilled her portion of the obligation.
    c. If you bought property subject 2, then the husband because of his credit being on the line, should have the right to insist via lawsuit that the property be refinanced to remove the risk of his credit being on the line.
    d. If the husband?s name was still on the deed (wife did not get his name off) his blessings would have been required to transfer title.
    e. The divorce decree only orders transfer. It is the former wife?s obligation to complete such changes. If not done the husband may retain a legal standing that must be contested, ruled on, and executed.
    f. I have seen online court rulings wherein the court declares an individual as owner. A new deed typically follows making everything official.

Essentially the husband can insist on having you refinance to protect his credit interests though he may have a tougher argument for getting title, due to the divorce decree. The title company should have looked for a deed (the missing link) from the husband to the wife, as sole owner. Then you would have had fewer issues with a deed from the wife to you.

A deed from the husband to the wife probably did not happen because the wife was not financially able to refinance. This could have been accomplished however using a double closing with you at the far end of the table. Even subject 2, if the husband was agreeable or compensated (ie agreement to pay upon your resale, second mortgage, etc…)

Disclaimer: I am not a lawyer, just my 2 cents. Laws vary state to state. Hope this provokes some thought

Re: Subject to problem causing due-on-sale - Posted by Mike-OH

Posted by Mike-OH on July 21, 2005 at 06:19:04:

Anyone can sue anyone, anytime, for anything. It’s just that simple. Will you win? Unfortunately, the answer will only partly be determined by the law. If you get a bleeding heart judge or jury, you could lose even if you are right. If the plaintiff has a better lawyer than you, again you could lose. You will only get the justice that you can afford (thankfully you have title insurance). No-one can say for sure who will win.

If the plaintiff just wants to be off the mortgage, why not just refinance and be done with it. If he wants your stuff (money, house, toys, etc), then delay, delay, delay, and fight him at every turn. Lawsuits are ugly and this is where asset protection comes into play. Hopefully, you have your properties separated into different LLCs and didn’t sign personally.

The good news is that vast majority of lawsuits never go to trial.

Good Luck,


Re: Subject to problem causing due-on-sale - Posted by Jim FL

Posted by Jim FL on July 20, 2005 at 23:38:37:

Let me see if I read this right.
You purchased the house sub2 from the ex-wife?
She signed a deed to you, or your trustee?
So, she sold her interest to you?
The husband, even though ordered by the court to quit claim to the wife, never did, therefore, he still had a claim on title, right?
So, it would seem you now own her half of the house…hence the reason your attny is trying a ‘quiet title action’ to no doubt attempt to prove the husband lost his claim to title based on the divorce decree?..speaking of which, was that recorded?
When you purchased, did you search and insure title?
If so, then yes, title insurance should handle this for you, since they covered any claims against title…hopefully you did do this.

I’m not a lawyer, and that was not legal advice, just some questions/comments that came to my mind when reading your post.

Perhaps I missed something, but if it is as I posted above, then you ‘might’ be alright, if your attny forgets the sub2 transaction b.s. and just gets the issue of the husband having any claim to title or not, based on what he did/did not sign, or was ordered to by the divorce court.
Ask your attny these things, sometimes they need a push from us…they do after all work for us.

Good luck, doesn’t sound fun,
Jim FL

Re: Subject to problem causing due-on-sale - Posted by gerald(tx)

Posted by gerald(tx) on July 20, 2005 at 23:09:27:

I think the husband may have a case. The problem I see is that: – Subject 2 is taking title subject to the existing mortgage. Since his name is on the existing mortgage, he has a definite interest. Whereas he has agreed to release title to his ex-wife, he has not agreed to his credit being used by a third party.

I can see where a judge might agree that he should have been a party to the Sub2 agreement.

I’ll look forward to seeing the outcome of this. Good luck in your pursuit.


Re: Subject to problem causing due-on-sale - Posted by Phil

Posted by Phil on July 20, 2005 at 21:11:11:

This is one for Johnboy.

Land trusts and LLCs - Posted by Marc Donovan

Posted by Marc Donovan on July 21, 2005 at 17:25:43:

Separate land trusts for every property and 2 LLCs holding the bene interests. The plaintiff’s attorney does not know who I am yet - hopefully it will stay that way.

Re: Subject to problem causing due-on-sale - Posted by Marc Donovan

Posted by Marc Donovan on July 21, 2005 at 05:43:51:

Yes, everything you asked is correct. I did purchase title insurance. Its the underwriter’s attorney who is suggesting we will have a problem. But based on what you say, its their problem, not mine.

B.S… - Posted by David Alexander

Posted by David Alexander on July 21, 2005 at 14:10:06:

The point is that the husband was supposed to surrender title… he would have surrendered it “subject to” in the first place…

If she sold it subject to… to satisfy her obligations then it’s sold period…

The problem is simply not getting a quit claim deed in the first place signed by the husband…

David Alexander

Re: Subject to problem causing due-on-sale - Posted by DoubleJ

Posted by DoubleJ on July 21, 2005 at 07:40:38:

Thats the way I would see this one going too. I know nothing about law, it just seems right…

If it were me, I wouldnt let this get anywhere near trial.

who’s Johnboy? - Posted by Marc Donovan

Posted by Marc Donovan on July 21, 2005 at 05:45:41:

Sorry its been a while since i have been back here.

i concur… - Posted by luke-NC

Posted by luke-NC on July 21, 2005 at 16:57:42:

even still, title insurance covers this…i’d sit back and relax…