Final Divorce and Closing the Deal: The Mechanics of Turning White Paper into Green Money

Here’s a handy dandy guide to the process of client financing upon final divorce. Often there are questions back and forth about what documents are required by me (the lender), when they are required, who prepares them, who signs them, who the trustee is, how they are delivered, where they are kept, when they are to be filed, etc.

So far as I know, no one has outlined this process for attorneys, clients and even lenders. So, this should be a first.

Let’s take the case of a refinance on the part of the grantee (of the marital residence) which includes a buyout to the grantor ex-spouse. And, as should nearly always be the case, the buyout is specified as an Owelty agreement and lien.

But first of all, it’s very important that certain steps will have already been taken BEFORE final divorce. Those steps are:

1. Client will have called me – the earlier the better – and said “my attorney is a genius and she/he told me to call you.” Seriously, this should happen after the first interview. Surprisingly, there are questions about this first step. “I tried to get them to call you,” I hear, sometimes months after final divorce when financing has been stalled or circumvented for some reason. The main recommendation I have is this – don’t ask them, do not suggest to them….tell them. You are the doctor. You, alone, have the power to write the prescription. Here are a few phrases which might bring the point home:
   • Call Noel immediately. You will need more than a pre-approval from just any old lender. You will need an approval. He knows what to do.
   • Call the funny looking guy on the business card immediately. You may need months to get prepared for financing. For example, if you need support income to qualify, you will need a six-month history…so, you’d better get started sooner than later; and, Noel can show you how to do it without upsetting your spouse. [Now, you look like a genius and you have given your client valuable information which few other attorneys even know.]
   • I’m calling Noel right now while you’re here. He’ll give us a 3 minute thumbnail sketch of what you need. [Now you ARE a genius.]
2. I will have processed the client’s loan and had it underwritten to the point of needing only the judge’s signature on the final decree as a condition for closing their loan. [Now, I’m the genius - thank you very much – as this is the heart and soul of the Divorce-Lending Specialty, the feature that makes this so valuable. When the divorce is final, there is no guess work on either side – everyone knows that I am going to turn that white paper into green money.]
3. I will have written an Assessment with specific recommendations for the settlement (pertaining to the buyout).
4. I will have reviewed – really, PRE-UNDERWRITTEN – the divorce decree and made any necessary suggestions for language which will accommodate the financing. When I give the “thumbs up,” that means – you guessed it – I will turn that white paper into green money. I also preview the ancillary documents like the Special Warranty Deed with Encumbrance of Owelty of Partition…but, now I’m getting into the next phase.

Those are the steps that lead up to final divorce – as pertains to the financing and buyout.

Now, here are the steps that mechanically pull off the loan closing and payment to grantor….*including any payment to you for outstanding legal bills.

Before moving forward, let’s establish a short glossary.

Ancillary documents. Those documents – generally deeds and a note – which accompany the settlement/decree and mechanize the transfer of title or interest in properties and establish liens. They include:

1. The Special Warranty Deed. This transfers interest in a property.
2. The Special Warranty Deed with Encumbrance for Owelty of Partition. This is the lien on property.
3. Deed of Trust to Secure Assumption. This enables the grantor to foreclose his/her interest in the awarded property in the event of loan default on the part of the grantee.
4. Owelty Deed of Trust. This secures the interest of the grantor and functions as the Special Warranty Deed with Encumbrance for Owelty of Partition….
5. Real Estate Lien Note. This note establishes a payment schedule for the payment of the Owelty lien over time, usually in installment payments and incurring per annum interest.

This is important to understand about ancillary documents – only the decree and the Special Warranty Deed (or the SWD with Encumbrance for Owelty of Partition) are necessary for the financing transaction. The decree establishes the Owelty and the SWD w/Owelty records the Owelty lien in property records. And, that’s all I need to turn white paper into green money.

HOWEVER < did you notice that this is in capital letters….HOWEVER, if decree or the Special Warranty Deed (with or without Owelty encumbrance) refers to another document (like a Real Estate Lien Note or an Owelty Deed of Trust), the title company must assure that these documents are filed at the time of loan closing.

Back to the mechanical steps upon final divorce…getting the client/borrower to the table and the funding of the loan:

1. Determine who is preparing the ancillary deeds/note. Coordinate with me. I or my transaction coordinator will ask your office “who is preparing the deeds/notes?”
a. If one or both of the attorneys are preparing the ancillary documents, they should be sent to me as soon as possible for review. I actually have the title company review them….mainly to determine
i. Identity of the grantee (who is awarded the property); that it is consistent throughout.
ii. Consistency of property’s legal description
iii. Consistency (between the decree and the Special Warranty Deed with Encumbrance for Owelty of Partition) of the dollar amount of the lien/buyout.
iv. Precise language which should create the appropriate lien, obligations, etc. according to the divorce decree.
b. The title company can prepare any or all of the ancillary documents. I just need to know. The title company simply needs a copy of the divorce decree in order to prepare these documents.

2. Divorce decree is signed; all ancillary documents are signed. Decree is entered.

3. The final, conformed decree is faxed or scanned to me – hopefully immediately after its entry. Please do not mail – fax or scan/email. I (the lender) do not need the original or a certified copy of the original. The exception is when the decree takes the place of the Special Warranty Deed and is, therefore, filed in property records AS the Special Warranty Deed.

4. Originals of deeds and note to arrive at title company. The grantee who is refinancing and including the Owelty buyout should be given the originals of all the ancillary deeds and notes; which are to be given to the title agent (at closing) who will file them on funding day after loan closing.
a. If the grantor’s attorney wishes to hold the documents favoring his client to assure their filing, that could work so long as that attorney is available to provide the documents to the title agent without delay…at a moment’s notice.
b. The simpler practice is to trust the title company which has the fiduciary responsibility for filing. The title insurance insures (among other things) that all liens against property are satisfied. Of course, my management of the process determines my business, compensation and reputation.
c. For cases wherein there is suspicion or even just simple diligence, the grantor’s attorney could forward the original, executed/notarized documents straight to the title agent, bypassing the grantee and me. Contact me for the title company information.

5. Parties or attorneys to provide me with contact information of grantor who is to receive Owelty funds. I connect this person with the title agent who will provide him/her with their funds; by wire, by check delivery or by receipt of check at the physical location of the title company – grantor’s choice. The point is, I connect the person who is to receive money with the person who actually pulls the trigger to provide them with the money.

6. Grantee/Borrower closes their loan.

7. Loan “funds” after the three-day right of rescission period. This is when all loan funds as well as Owelty funds are disbursed.
a. Grantor (receiving funds) exchanges their signature on a release of lien for funds.
b. After “funding” I send confirmation of closing and payment to grantor/ex-spouse to grantee’s/borrower’s attorney. This completes the file from the perspective of the Owelty buyout.

Here’s another CRITICAL step – actually something NOT to do.

Please do NOT file the Special Warranty Deed. First of all, you already know not to file it before final divorce as it would then be a moot document/filing. But, for our purposes, we cannot close the loan until the title search finds the filed Special Warranty Deed. With electronic filing and county databases available 24/7, this does not take as long as it used to. However, not all counties are alike in terms of how long it may take for a filed document to show up in a title search as having been filed. It is much simpler for the closing title company to have the deed in hand so that it insures that it is filed or has been filed. It’s a seamless, simultaneous occurrence.
*Make sure I know about these outstanding legal bills, of course. Most times, they can be accommodated but there is a very precise way to do so.

Hope this helps. Thanks for reading.

Noel Cookman