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Refinance Quitclaim Blues – Cured by Borghi? - By Douglas Becker

It’s an issue every family law attorney and mediator has seen: one spouse owns a separate property house, but sometime during the marriage the couple refinances and in their pile of closing papers is a quitclaim deed that transfers title to the couple. Fast-forward to the divorce and the question is: whose house is it?

 

          Back in the days when appellate courts thought trial judges had brains and divorces were equitable proceedings, this was a discretionary call. Then, in 1993, the Division I Court of Appeals published back-to-back opinions by the same panel of judges containing the same holding: a quitclaim deed creates a legal presumption of a gift to the community. In re Marriage of Olivares, 69 Wn. App. 324, 848 P.2d 1281, review denied, 122 Wn.2d 1009 (1993); In re Marriage of Hurd, 69 Wn. App. 38, 848 P.2d 185, review denied, 122 Wn.2d 1020 (1993). Under this presumption the spouse trying to uphold his or her separate property claim has the burden of proving the quitclaim deed wasn’t intended as a gift—a classic prove-the-negative dilemma.

 

          An odd aspect of Hurd and Olivares was that they so clearly ran against the historical presumption to the contrary, which was that a party seeking to uphold a quitclaim deed between spouses has the burden of showing the transfer of interest in the property for inadequate consideration was made freely and that the transaction was fair and just. In re Marriage of Marzetta, 129 Wn. App. 607, 620, 120 P.3d 75, review denied 157 Wn.2d 1009, 139 P.3d 349 (2005); Yeager v. Yeager, 82 Wash. 271, 274, 144 P. 22 (1914).

 

          The gift presumption assumes that there isn’t any need to look beyond the quitclaim deed to establish a prima facia gift intent and that quitclaim deeds signed during refinancing are made “freely,” so therefore they indicate a gift intent. Unfortunately, as discussed below, even the explicit overruling of the gift presumption by In re Estate of Borghi, 167 Wn.2d 480, __ P.3d __ (2009) doesn’t adequately correct these assumptions, which arise from an overreaching interpretation of the written evidence rule.

 

The written evidence requirement has long been attached to the clear and convincing standard of proof required for showing intent to change the character of marital property. In re Marriage of Mueller, 140 Wn. App. 498, 508, 167 P.3d 568 (2007); In re Estate of Verbeek, 2 Wn. App. 144, 158, 467 P.2d 178 (1970); Graves v. Graves, 48 Wash. 664, 94 P. 481 (1908).

 

The problem arises when a court assumes that because written evidence is required, it is therefore sufficient by itself to shift the burden of proof. There is no reason to assume a simple quitclaim deed tells the court everything it needs to know in an equitable proceeding like a divorce. Take, for example, the Olivares case, in which the husband’s grandparents assigned a real estate contract to the couple. “Initially, the parents were making the assignment to Stephen. However, the escrow agent added Theresa’s name to the transfer documents, explaining to Stephen and his parents that it was ‘required by law’ to include both the husband and wife as joint tenants.” Olivares at 327. In a footnote the opinion claimed “[c]ertainly the proposition sounds foreign to Washington lawyers and judges.” But to Washington family law attorneys, such an assertion by an escrow officer doesn’t sound foreign at all. It sounds like a typical escrow officer parroting a line provided by financial institutions who would rather not acknowledge that they are in a better legal position against the debtors if a quitclaim deed is obtained. If you want the loan, you sign the deed.

 

This leads to the other problematic assumption, that quitclaim deeds executed during refinancing are “made freely.” Nowhere is this more clearly expressed than in the recent unpublished opinion of In re Marriage of Erdman, 2009 Wash. App. LEXIS 2992 (Wash. Ct. App., Nov. 17, 2009). In arriving at an opposite result from Borghi, the Erdman decision distinguished Borghi by stating:

 

The consideration listed on the deed was “to establish community property,” despite Mr. Erdman’s argument that he only added Ms. Mohs's name to obtain a loan. If Mr. Erdman’s sole reason to add Ms. Mohs's name to the deed was to obtain a loan, it is highly unlikely he would want the consideration to be “to establish community property”. Furthermore, if Mr. Erdman's reasoning is to be believed, he could have taken Ms. Mohs's name off the deed once the loan was obtained, or after the loan was satisfied, which he did not.

 

Highly unlikely? That’s appellate myopia at its finest. Mr. Erdman doubtless had no input into the quitclaim deed’s recitals and “[t]o establish community property” isn’t a layman’s term, it is the legal language of mortgage companies used in the context of the borrower’s marital contentment, lack of knowledge and radically unequal bargaining power. In reality, it is highly unlikely that a refinancing quitclaim deed, even if it says “for love and affection,” demonstrates any intent to gift separate property to the community. It is also highly unlikely that a failure to later quitclaim the property back to the individual spouse indicates anything more than a lack of awareness that it was even an issue. The mischief in using either one as a basis to shift the burden of proof back to the separate property claimant is that lack of awareness does not equal intent to gift.

 

So, what of the Borghi decision itself? Certainly it signals a return to respect for separate property and a clear intent by a majority of the Supreme Court to get rid of the gift presumption. “We…adhere to the well settled rule that no presumption arises from the names on a deed or title. We take this opportunity to…disapprove any reading of Hurd or Olivares that suggests a gift presumption arising when title to property is changed from the name of a single spouse to both spouses.” Borghi at 486. “To the extent Hurd or Olivares suggest a gift presumption arising when one spouse places the name of the other spouse on title to separate property, we disapprove these cases.” Borghi at p. 490.

 

However, the decision has shortcomings that make it possible for courts so inclined to ignore the point. First, Borghi didn’t involve a refinance. Under the peculiar facts of the case, one spouse bought real property on contract prior to the relationship and upon successful completion the third-party creditor quitclaimed the property to both spouses. Hence, the separate property spouse didn’t show any intent, in writing or otherwise.

 

Second, repeating the written evidence requirement left open the question of whether a quitclaim deed alone is sufficient to shift the burden of proof. “With respect to real property, a spouse may execute a quit claim deed transferring the property to the community, join in a valid community property agreement, or otherwise in writing evidence his or her intent. [Cites omitted. Italics added.] But in the absence of such evidence, the name in which title is held, including a change in title, tells us nothing or is ambiguous at best.” Borghi at p. 488-89. It is notable that the concurring opinion in Borghi by the fifth justice in a 5-4 decision refused to endorse the written evidence requirement, presumably because this creates a loophole that the Erdman court drove a truck through; namely the opportunity to continue assuming that the evidence provided by a quitclaim deed is more than ordinary evidence; it is sufficient evidence, by itself, to shift the burden of proof and require the party defending their separate property to “prove the negative” by clear and convincing evidence. In the end, this issue won’t be resolved until a refinance case is cleanly presented to our Supreme Court. Until then, both sides can make their arguments and the trial court can exercise its discretion if it chooses to, which is an improvement. Attorneys and mediators should advise their clients that the “gift presumption” should no longer be relied upon and, technically at least, has been overruled.

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Douglas Becker is a family law litigator and mediator and past chair of the WSBA Family Law Section. His contributions to family law were recognized by the WSBA Family Law Section's 1992 Attorney of the Year award and a 2002 Special Achievement Award. Mr. Becker is the founder and moderator of the WSBA Family Law Section’s list serv Website where he makes available QuickCites, a regularly updated compendium of all Washington appellate holdings on family law.

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