This is as a friendly reminder to include proceeds division and distribution directives in sale-of-house orders between divorcing spouses!
In addition to enforceability and protecting your clients’ interest, here are a few of the issues we see when there are no orders or written agreement regarding distribution of proceeds at closing:
• Sale sabotage: When parties living in the house have no idea if, when, or how much money they will have when the house sells, as listing agents, we are often “ghosted.” Once the house is listed, showings are declined, access to inspectors and appraisers is denied, and the sale is stalled. This frequently occurs because there is uncertainty and fear due to lack of funds to secure new housing.
• Misunderstanding / contract breach: Every client who sells their house must line up new housing. More often than not, the funds to do so come from the proceeds of the sale. In the flurry of the chaos that their lives have become, clients may overlook the fact that the proceeds may not be distributed to them immediately upon sale and instead be disbursed to an attorney’s trust account. Perhaps the proceeds must be used to first pay off a litany of debts such as support judgments, other joint debts or attorneys’ fees. There are numerous case scenarios where a party goes under contract to purchase another property, only to find out that they cannot purchase something else because their sale proceeds are tied up. In addition to devastating disappointment, clients in this situation can find themselves liable due to breach of the new purchase contract they cannot fulfill.
• Closing delays: Once a contract is accepted, title (or escrow) is opened. Within a few days, closing instructions are drawn up, and included within the packet of documents is a “proceeds disbursement” form. If there is a disagreement or lack of clarity around where the funds go, it will need to be sorted out prior to closing. Depending on the level of conflict and whether the court needs to be involved or not, there may be significant delays, which can also put the parties in breach of contract. After all, for every sale, there is usually a buyer who’s got a moving van loaded, a house they must vacate, contractors and furniture deliveries lined up, utilities set to transfer, mail forwarded, and interest accruing daily if their loan has been funded. A seller delay for something that should have been handled weeks prior, will not be acceptable to buyers who have held up their end of the deal.
Without an order or agreement, the closing process can evade busy counsel, and without a close eye on these timelines, the parties may instruct the closing officer to distribute funds directly to their accounts, bypassing attorney trust accounts or other joint debts being paid.
Perhaps the most alarming scenario is when only one party is on title. The titled party is the principal in the real estate transaction. Title officers and brokers can be bound by fiduciary duties and real estate industry governance to obey the principal and distribute funds pursuant to their instructions (i.e., their own bank account). They may slice out the other party altogether!
It’s also worth noting that title frequently cannot (or will not) hold funds after closing. They are governed by oversight and have compliance issues when funds are held for any length of time. A family law dispute over proceeds distribution isn’t favorably looked upon.
Appointing a Certified Divorce Real Estate Expert (CDRE) as the listing agent on a case is an effective way to ensure orders match distribution instructions, but that duty must be outlined clearly in an order, since a typical Realtor’s role does not extend that far.
When I am appointed on a case, for example, I obtain a copy of the court order and inquire about proceeds distribution on day one. If there is no agreement, I flag my file to seek clarification from the parties and counsel until there is one. I work closely with my closing officer to ensure there are no discrepancies between the order and the instructions; after all, rolling back improperly distributed funds can be akin to unringing a bell.
I have been a real estate professional for over 20 years. I am a Certified Divorce Real Estate Expert (CDRE®) and a Certified Probate Real Estate Specialist (CPRES®). I work with Divorce and Probate law firms, and their clients to ensure the best and most profitable outcome every time.
Feel free to reach out to me if you have any questions about proceeds distribution or anything else related to the real estate aspect of your cases. If you have a case involving the sale or transfer of real property that needs to be listed, please visit my website https://madelinespino.com. I appreciate the opportunity to work together.
I can also be reached directly at madelin@madelinespino.com, or 305.205.5232.
My goal is to make your life easier.