[WSBAPT] Does a Deed of Trust or Foreclosure affect the use of a Quit Claim Deed?

[Mike Winslow]

The short answer to your question is that the wife can execute the QCD without issue. She is acting pursuant to court order, and the transfer is exempt from excise tax as a spousal transfer anyway, although a  REETA will be required. You might be tempted to cite the spousal transfer exemption. But if you have a nitpicky treasurer’s staff like we do, watch out.
 
Most likely the wife was required to sign the DOT b/c of her potential marital rights, even though she was not listed on title. I would bet a title report would show she is not on title, so any deed would be merely a title clearing deed. If she had been on title at time of the loan, typically the lender would have required wife to sign the Promissory Note, making the loan to the marital community. Point being, the wife may not be on title, so the correct excise exemption would actually be either “title clearing deed” or “transfer pursuant to court order”.  Our treasurer’s staff would actually reject the REETA or make us change the WAC reference on the REETA under this scenario if claiming the spousal transfer exemption. I have heard similar stories about treasurer’s staff in King County. Word to the wise….
 
Transfers between spouses typically cannot trigger due on sale clause under Garn St. Germaine, in any event.
QCD  is a transfer of title without warranty of title so the foreclosure is a non-issue.
 
Michael A. Winslow
1204 Cleveland Ave.
Mount Vernon, WA 98273
Ph. 360-336-3321
Em. Mike at winslegal.com
 
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From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Eric Reutter
Sent: Thursday, March 30, 2017 6:03 PM
To: wsbapt at lists.wsbarppt.com
Subject: [WSBAPT] Does a Deed of Trust or Foreclosure affect the use of a Quit Claim Deed?
 
Hi all,
 
Potential client owns half-interest in a property that she would like to transfer via quit claim deed to the other half-owner of the property, the ex-spouse (pursuant to the terms of a divorce decree). 
 
This seems simple enough, but there may be an added layer of complexity here.
 
There is a mortgage on the property. Potential client, however, is not subject to the mortgage loan, as the loan was always in the ex-spouse's name. Potential client, however, did sign off on the Deed of Trust issued to the bank when the mortgage was taken out on the property. To make matters more interesting, the home is now being foreclosed upon, and potential client wants to get her name off title and transfer the home interest before the foreclosure (something she was going to do regardless pursuant to the divorce decree).
 
This interesting fact pattern leads to following question: 
Can a grantor whose name is not on the mortgage use a quit claim deed to transfer her interest in the property, regardless of the fact that she executed a Deed of Trust and regardless of the fact that the home is being foreclosed upon?
 
My initial thought is that the potential client can go ahead and transfer via the quit claim deed, since she does not have to worry about the "due on sale" clause that normally affects properties with mortgages (her name is not on the loan documents), she is not warranting that the property interest is not subject to foreclosure (it is a quit claim deed and the person receiving the interest is the one who is delinquent on the loan), and since she is required by the divorce decree to transfer the home interest.
 
The foreclosure proceedings add a layer of complexity that I want to be sure I understand, and it has been a while since I dealt with issues of equitable title vs. legal title, so I wanted to bring this issue to the listserv.
 
Any input or thoughts are greatly appreciated!
 
Eric Reutter, Partner 
J.D., LL.M. Taxation
14205 SE 36th Street, Suite 100
Bellevue, WA 98006
(425) 298-7110 | appelgatereutter.com <http://appelgatereutter.com/>  
 
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