Ask the TITLEMAN™ - Disclaimer Deed; Legal Problems; Leases

by John T. Lotardo aka TITLEMAN™-Sr VP/General Counsel, Stewart Title & Trust of Phoenix

Q. I have a question in regards to disclaimer deeds. We have a lender who is requiring a new disclaimer deed signed by a spouse even though the spouse signed one in 1997. Since then, the spouse has had no reason to sign a new one - has not signed or joined in any Deeds of Trust or anything. Our lender is saying that, because Arizona is a Community Property state, they require a new Disclaimer Deed for every refinance. Isn’t the reason the spouse signs a disclaimer deed is to show that they have no interest in the property, or has things changed with the way the courts view things?
A. I believe the lender is being cautious because Arizona is a Community Property state. Perhaps they are concerned that circumstances changed such that the property is no longer separate property (It’s that “transmutation” theory of changing from a separate asset to a community asset). From a title insurance perspective, chances are, the old disclaimer is still valid, especially for a bona-fide lender like yours. With that said, if the lender wants another one done, then it certainly would confirm the prior disclaimer.

Q. I need some information regarding “legal problems.” In a transaction I’m handling, the seller says that there are a few “legal problems” with his property. We were going to issue an ALTA Homeowners Policy. Now with possible legal problems disclosed I asked to find out exactly what legal problems the seller is referring to. The agent tells me to just issue a standard owners policy then. Am I okay?
A. Not so fast, I think you have a legitimate beef. Merely reverting to issuing a Standard Owners Policy may or may not do the trick. The customer has put you on notice that there are potential issues. You don’t go into details of what the “legal problems” are but with actual knowledge, albeit weak, you may be considered to know about an “off-record” matter. If that happens, then you may not be able to rely on the boilerplate exception in Standard Owners Policy. Perhaps you could possibly issue a title commitment with a requirement for the seller to provide further information with a right to amend based upon that information. I know this may seem a bit tedious but is a possible compromise. The legal problems may be something that you could except from coverage assuming the buyer/lender is willing.

Q. I have a lease question for you. Do all leases terminate when a property goes through foreclosure or does the new buyer take the property subject to them? I have a piece of commercial property with several leases recorded against it. I disclosed them even though the property went through foreclosure. The successful bidder at the foreclosure who is now selling is telling me that they should be gone because of the foreclosure. I asked around and we’re not too sure. They were all recorded before the deed of trust that got foreclosed was recorded. Does that make any difference?
A. It all depends upon the language found in the leases. Some say that the lease is subordinate to any future deed of trust and that they will attorn to any successful bidder under a foreclosure. Others say that it is at the discretion of the new owner. Without certain language, they normally would not be wiped out- being recorded first- unless an actual subordination was executed by the tenant, typically done at the time the new deed of trust was created.

The information supplied is of a general nature and should not be relied upon as comprehensive legal advice. Please consult with your own local legal counsel. To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

Copyright John T. Lotardo. All rights reserved. John Lotardo (aka the TITLEMAN™) is Senior Vice-President and General Counsel for Stewart Title & Trust of Phoenix, Inc., and State Underwriting Counsel for Stewart Title Guaranty Company. He is a member of the National Advisory Councils for GoGetEscrow.com, GoGetLoan.com, GoGetNotary.com and GoGetRealEstate.com. The information supplied is of a general nature and should not be relied upon as comprehensive legal advice. Please consult with your own local legal counsel. For more about John, visit: www.GoGetEscrow.com/Get/Titleman or www.AskTheTitleman.com.