Why do title companies review divorce decrees ?
Several reasons, really. The first and primary question is they want to see if either spouse was awarded the property in question.
If one spouse was awarded the property, the next question is: Did the "buying" spouse "pay" anything for the transfer of that property ? If so, what ?
"Payment" for the division and allocation of community property assets in a divorce might simply be division and award of named listed property. You take these assets listed here, I will take these assets listed there, you will pay this debt listed here, and I will pay that debt listed there.
But if the division is unequal, or there aren't enough assets to divide evenly or they otherwise can't be cleanly divided, perhaps the deal struck in the divorce agreement is to have one spouse literally pay the other one for the award / transfer of the property to one spouse.
This payment can be done a number of ways. Some divorce decrees will call for a lump sum payment, or series of payments, by the purchasing spouse within certain deadlines. This is essentially a debt owed under a payment deadline or payment schedule. Although not evidenced formally by a promissory note, it is still a debt, created by agreement of the spouses and then confirmed by order of the court.
Other divorce decrees will go further, creating such debt and requiring the execution and delivery of a promissory note under which the payments are owed.
And sometimes the divorce decree will create, in the decree itself, a formal lien to secure such debt or promissory note -- often called a lien of "owelty." (A very strange word indeed which is often misspelled by this author.) An owelty lien could also be additionally secured by a formal deed of trust, executed by the purchasing spouse, and recorded as a mortgage lien in the county land records.
As you know, title companies are very interested in liens, and making sure they are paid and released, as a condition to insuring title to a new buyer. So that is another reason why divorces are scrutinized as part of the closing process.
Q: What if a divorce decree awards one spouse the property, requires the other spouse to pay for it, but is silent as to any lien or other security to ensure such payment is made ? If there is no express lien, then the title company doesn't care about verifying that payment, do they ?
A: They DO care about such payment. Under common law, a lien can be "implied" (imposed by law) anytime the vendee (think buying spouse) does not pay the full purchase price for the property conveyed, and owes additional payments / $$ to the vendor (think selling spouse). This lien is sometimes called an "equitable lien" because it is imposed by a court in equity, as a basic remedy to right an injustice.
Selling spouse: "You didn't fully pay me for that real estate -- so in all fairness, the court should use its powers in equity to impose a lien in the property for my benefit, and that would allow me to foreclose such lien or otherwise rescind the deed / title I previously gave to you, as a remedy for your non-payment."
Wow. Really ? Yes.
If you hold title from your ex, and you are making payments to your ex for the award of that property to you -- or the award of a BUNCH of community assets to you which INCLUDES that property -- your property probably has a lien on it to secure those payments. You will have to pay up before you can sell or refinance through a title company. Or if you have already paid, you had better be able to prove you made those payments to your ex, or get your ex to sign a release evidencing that he or she has been paid everything for your title.
Some folks get quite surprised by this requirement right before closing.