Title Issues That Can Derail Divorce Settlements

Title issues represent one of the most overlooked yet potentially devastating complications in divorce real estate cases. What appears to be a straightforward property division can quickly become a legal nightmare when unknown liens, HELOC misuse, or mechanics liens surface during the settlement process.

The Hidden Dangers in Property Titles

During a recent divorce case, we discovered what initially appeared to be a clean title actually carried three separate liens totaling $85,000 that neither spouse was aware of. This discovery completely changed the property's net value and required extensive legal intervention to resolve.

Title issues in divorce cases fall into several critical categories that attorneys must understand to protect their clients' interests.

Unknown Mechanics Liens

Mechanics liens are among the most common title surprises in divorce cases. These liens can be filed by contractors, subcontractors, or suppliers who performed work on the property but weren't paid. In Pennsylvania, mechanics liens can be filed up to four months after completion of work, creating a significant window of vulnerability.

Common scenarios include:

• Home improvement projects completed during the marriage where final payments weren't made
• Subcontractor disputes where the general contractor failed to pay workers
• Material suppliers who weren't paid for delivered goods
• Emergency repairs where payment disputes arose

These liens take priority over most other debts and can significantly impact property values. A $15,000 mechanics lien on a $200,000 property doesn't just reduce the value by $15,000 – it can make the property unmarketable until resolved.

HELOC Misuse and Hidden Debt

Home Equity Lines of Credit (HELOCs) present unique challenges in divorce proceedings, particularly when one spouse has access to funds without the other's knowledge. We've encountered cases where spouses discovered tens of thousands in HELOC debt that was used for purposes unrelated to the marital home.

Red flags for HELOC issues include:

• Unexplained improvements or purchases during the marriage
• One spouse handling all financial matters
• Recent credit applications or financial changes
• Discrepancies between stated mortgage balances and actual debt

In Pennsylvania, HELOC debt secured by the marital home typically becomes part of the marital estate, but determining how the funds were used can impact how the debt is divided between spouses.

Judgment Liens and Tax Issues

Personal judgments against either spouse can create liens against real property, even if the other spouse wasn't involved in the underlying debt. These can include:

• Unpaid credit card judgments
• Medical debt collections
• Business-related judgments
• Tax liens from federal, state, or local authorities

Tax liens are particularly problematic because they often take priority over other debts and can accrue significant penalties and interest over time.

The Title Research Process

Comprehensive title research goes far beyond a standard title search performed for a typical real estate transaction. For divorce cases, we recommend:

Extended Search Period

While standard title searches typically cover recent years, divorce-related searches should extend back to the beginning of the marriage or property ownership, whichever is longer.

Multiple Jurisdiction Search

Liens can be filed in various jurisdictions. A thorough search includes federal, state, county, and municipal records across all locations where the spouses have lived or conducted business.

Cross-Reference Verification

Names, addresses, and property descriptions should be cross-referenced across multiple databases to ensure no liens are missed due to clerical errors or variations in recording.

Resolution Strategies

When title issues are discovered, several resolution strategies may be available:

Negotiated Settlements

Many mechanics liens and judgment creditors will accept reduced payments for immediate resolution, particularly if the alternative is lengthy litigation.

Lien Challenges

Some liens may be invalid due to procedural errors, expired deadlines, or lack of proper notice. These can be challenged through legal proceedings.

Payment from Proceeds

Valid liens can often be satisfied from property sale proceeds, but this must be factored into the overall settlement negotiations.

Prevention and Protection

The best approach to title issues is prevention through early detection. We recommend title research be conducted as soon as divorce proceedings begin, not when property division is being finalized.

Best practices include:

• Immediate title search upon filing for divorce
• Regular monitoring for new liens during proceedings
• Verification of all outstanding debts and credit lines
• Documentation of all property improvements and payments

Working with Title Professionals

Divorce-related title issues require specialized expertise. Standard title companies may not have the experience or resources to conduct the comprehensive searches necessary for divorce cases.

Look for title professionals who understand:

• Divorce-specific title complications
• Multi-jurisdiction lien searches
• Mechanics lien law and procedures
• Judgment and tax lien resolution