By Mark A. Jones, Assoc. Senior Underwriting Counsel, Stewart Title Insurance Company
Whenever reviewing title examinations, when we see a traditional recorded mortgage, we all know the process of getting the mortgage released of record. The payoff is ordered, funds are collected at closing, the funds are
mailed or wired to the lender, and the lender then sends the release (hopefully) to the Registry of Deeds for recording. In contrast, an equitable mortgage is not “recorded” at the Registry of Deeds. An equitable mortgage is an inchoate lien, similar to an estate tax lien, that needs to be identified by a title examiner or attorney looking at the registry and probate records. An equitable mortgage typically arises when a divorce agreement and/or a judgment divides the marital assets, leaving one spouse the owner of real estate, but obligates the other spouse to pay a certain sum of money as part of the asset division. As the name suggests, the equitable mortgage is an equitable concept whereby if one party doesn’t satisfy their obligations, the other party’s assets are encumbered by the unsatisfied obligations. The following are some typical examples of situations where an equitable mortgage might arise and what would be required to insure.
Fact pattern 1: Divorce Agreement states Husband shall convey property to Wife and the agreement provides no payment of any funds by wife to the Husband.
Curative action: None. No equitable mortgage has been created as Wife has no financial obligation to the Husband. A conveyance by the Husband to the Wife will release his interest.
Fact pattern 2: Divorce Agreement states Husband and Wife shall list the property for sale and split the proceeds with the Wife getting 60% of the proceeds and Husband gets 40% of the proceeds. Both signed a deed for consideration to a third party buyer who is now selling.
Curative action: None. Both parties to the divorce have signed a deed for consideration and there is no need to go behind the transaction to determine if the parties received the pro rata share.
Fact pattern 3: Divorce Agreement states Wife shall convey the property to the Husband and Husband shall pay Wife $50,000. Wife conveys property to Husband for $1.00. No evidence of payment is filed in the probate or the Registry of Deeds. Five years later Husband goes to sell the property.
Curative action: As the record title fails to disclose evidence that the Husband’s financial obligation to pay the Wife the $50,000, the Wife may have an equitable mortgage encumbering the title. In order to insure we would require record title evidence of payment or a release from the Wife. Record title evidence can be satisfied by filing evidence of satisfaction of payment with the probate court in the divorce proceeding or by recording satisfactory documents with the Registry of Deeds.
Fact pattern 4: Divorce Agreement states Wife shall convey the property to the Husband and Husband shall pay Wife $50,000. Wife conveys property to Husband for $1.00. No evidence of payment is filed in the probate or the Registry of Deeds. Thirty-Five years later Husband goes to sell.
Curative action: Likely none, but check with an underwriter. Barring any extraordinary circumstances, we would generally not require evidence of payment or release from the wife. Although the traditional mortgage expiration statute (Mass Legislature Chapter 260, Section 33) of 35 years doesn’t specifically apply to an equitable mortgage, as there is no actual recorded mortgage, enough time has passed since the divorce that we would likely be comfortable insuring the property in this situation.
The above fact patterns are examples of common situations we see with divorce agreements. When reviewing a title with a divorce in the chain an Attorney should always be aware of any potential equitable mortgages that may arise. To add to the confusion, we often see situations where the agreement and/or judgment outlines the division of the property and then the parties do something completely different. Most divorce situations require a case by case analysis.