The Misunderstood Transfer on Death Deed
This guide provides an overview of the ambiguous provisions of West Virginia's recently enacted Uniform Real Property Transfer on Death Act and the important consequences of executing a Transfer on Death Deed
What About Survivorship?A transfer on death deed does NOT create survivorship in either the beneficiaries or the transferors. W. Va. Code Section 36-12-13(a)(3) provides that "concurrent interests are transferred to the beneficiaries in equal and undivided shares with no right of survivorship." This language is clear and unambiguous. Beneficiaries of a transfer on death deed will receive concurrent interests in the real property upon the death of the transferor(s), and will hold the property as tenants in common. However, there is ambiguity in the statute with regard to survivorship between transferors. W. Va. Code Section 36-12-13(c) provides that "If a transferor is a joint owner and is: (1) Survived by one or more other joint owners, the property that is the subject of a transfer on death deed belongs to the surviving joint owner or owners with right of survivorship. . . ." This language may be construed to mean that a transfer on death deed creates survivorship between joint owners. This is NOT the case, however. A further reading of the definitions section of the code reveals that the term "joint owner" means "an individual who owns property concurrently with one or more other individuals with a right of survivorship." W. Va. Code Section 36-12-2(4). Furthermore, the Uniform Law Commission's comments to the section, which was adopted verbatim by West Virginia, reveals that the purpose of this language is to ensure that the "survivorship right of a joint owner takes precedence over the transfer on death deed." Uniform Law Commission, Uniform Real Property Transfer on Death Act, Sept. 30, 2009, Section 13, cmt., p. 18. Thus, there can be no doubt that the language contained in W. Va. Code Section 36-12-13(c)(1) does not create survivorship between transferors; rather, the language is intended only to preserve the preexisting rights between joint owners who hold the property with rights of survivorship.
Who Cares About Survivorship?So the transfer on death deed does not create survivorship between transferors... So what? One of the main advantages of a transfer on death deed is that it does not subject the property to the claims of the beneficiaries' creditors (because it does not transfer any current ownership interests). If there are two or more transferors who hold the property as tenants in common, the transfer on death deed will become effective as soon as one of those owners dies. If transferor A dies first, Beneficiaries X and Y will receive A's share of the property interest and will hold that interest concurrently with Transferor B as tenants in common. Thus, A's property interest now becomes subject to the claims of X's and Y's creditors. Furthermore, if tensions arise between B, X and Y, any of them could file a partition action, forcing the property to be sold. These are obviously unintended consequences, and care MUST be taken to ensure that they do not occur. In order to ensure that B is protected, A and B should first execute a survivorship deed between themselves, consequently guaranteeing that nobody else will have any interest in the property until both A and B have died.
"Due on Sale" ClausesTransferors under a transfer on death deed should take caution if their property is currently subject to a deed of trust/mortgage. Deeds of trust usually contain "due on sale" clauses, which permit banks to demand the balance of the amount owed on the property when ownership of the property is altered. A lender cannot enforce such a provision if a transferor simply executes a transfer on death deed, as there has been no transfer of ownership interests. However, upon the death of the transferor(s), a lender may enforce such a provision. There are limits on a bank's authority to enforce a "due on sale" provision, though, which are contained in the Garn-St. Germain Depository Institutions Act of 1982, codified at 12 U.S.C. Section 1701j-3(d). The relevant portion of the code provides that "a lender may not exercise its option pursuant to a due on sale clause upon . . . (5) a transfer to a relative resulting from the death of a borrower [or] (6) a transfer where the spouse or children of the borrower become an owner of the property." Thus, a bank may not enforce a due on sale provision if a transfer on death deed names a relative, spouse or child as beneficiary. It seems legitimate, however, for a lender to enforce a due on sale provision if the transfer on death deed names someone else, a non-relative, as beneficiary.