Bulletin: WA2008001

Dear Associates:

A new law goes into effect next month that will significantly impact the title and escrow business in our state. The new law is titled "The Domestic Partnership Expansion Act of 2008," and builds on an earlier domestic partnership law passed last year that gave rather modest rights to registered domestic partners. The new law essentially gives domestic partners the same rights (including community property rights) that married persons have under state law. Because the new law is 195 pages long and amends over 170 different sections of the Washington statutes, this bulletin focuses on the provisions most relevant to our industry.

EFFECTIVE DATE

The Domestic Partnership Expansion Act (the "Act") goes into effect on June 12, 2008.

REGISTRATION PROCESS

To register, domestic partners must submit a notarized declaration and pay a fee to the Secretary of State. The Secretary of State maintains a register of domestic partnerships at the following web address:

http://www.secstate.wa.gov/corps/domesticpartnerships/

Once registered, each partner is given a Certificate of Registry evidencing their status as domestic partners. Since these registrations can be terminated (see below), please do not rely on a Certificate of Registry without confirming the registration with the Secretary of State.

WHO QUALIFIES FOR DOMESTIC PARTNERSHIPS

To enter into a domestic partnership, the partners must:

• Both be at least 18 years of age;
• Inhabit the same residence, regardless of the ownership of the residence;
• Be unmarried and not in a domestic partnership with another person;
• Be capable of consent;
• Not be closely related (this is defined more specifically in the statute); and
• Be of the same sex or be of different sexes if at least one partner is at least 62 years old (older individuals can lose social security or heath care benefits by marrying, so this provision allows them to gain the benefits afforded domestic partners without sacrificing their other benefits).

Under the Act, same-sex legal unions created in another state may also be recognized as a "domestic partnership" under Washington law. To be recognized, the union must be "substantially equivalent" to a domestic partnership under Washington law. This provision creates problems for title and escrow. If a couple moves to Washington from Massachusetts or California and claim to be domestic partners under the laws of those states, is the title company supposed to determine whether the Massachusetts or California domestic partnership laws are "substantially equivalent" to Washington's? If you have customers claiming domestic partnership rights based on the laws of another state, please contract your underwriter. The underwriter may require the parties claiming domestic partnership rights to register as domestic partners in Washington since the requirements for doing so are not onerous.

TERMINATION OF DOMESTIC PARTNERSHIPS

There are three methods of voluntarily terminating a domestic partnership.

1. Administrative Termination . The first way to terminate a domestic partnership is to file a notice of termination with the Secretary of State. The termination can be done unilaterally by one of the partners provided they submit evidence that they have notified or attempted to notify the other partner of their intent to terminate the partnership. The termination is effective 90 days after the notice of termination is submitted to the Secretary of State. The Secretary of State then sends a Certificate of Termination to each partner. However, this method of termination is likely to be used very rarely, as it is only available if:

-- Neither partner owns real property or has a long termlease for real property;

-- Neither partner has any minor children;

-- Both partners have executed a propertydivision agreement;

-- Neither partner is pregnant;

-- Both partners have waived support paymentsfrom the other; and

-- Both partners have very minimal assets(under $25,000) and very minimal debts.

In the event you are asked to rely on an administrative termination of a domestic partnership, you should reflect on whether you have information to suggest the partners did not qualify for this form of termination (rendering the termination suspect). For example, if you are asked to rely on an administrative termination to treat property as the separate property of a person, but you know that person has a minor child or owned real property at the time the termination occurred, you should not rely on the administrative termination. We are not expecting you to conduct investigations to determine whether the administrative termination was valid, only to consider the information already in your possession.

2. Dissolution Proceedings. The second method of terminating a domestic partnership is through the same dissolution proceedings used by married couples. Therefore, we will face the same issues with domestic partnerships that are in the process of terminating that we have with married couples that are divorcing. Generally we will require that the termination process (including property division) is concluded before we insure, even if one partner has executed a deed to the other. Any exceptions to this must be approved by an underwriter.

3. Automatic Termination. A domestic partnership is also automatically terminated when the partners marry each other. As noted above, partners of different genders can be domestic partners if one is at least 62 years old. So if different sex domestic partners get married, their domestic partnership terminates. This provision may also become important in the event same sex couples are someday allowed to marry in Washington. In the event you are asked to take action in reliance on a domestic partnership registration (such as in an intestacy situation), you should confirm the registration with the Secretary of State and obtain an affidavit from the partner(s) that they were not or are not currently married.

COMMUNITY PROPERTY RIGHTS

The biggest change in the law is that domestic partners are given the same community property rights that married persons now have. For those couples who have already registered as domestic partners, their community property rights don't begin until June 12th. Any property they acquired prior to June 12th will not be community property . However, they may execute a community property agreement declaring their separate property as community property. Couples who register as domestic partners after June 12, 2008 have community property rights as soon as they register as domestic partners (as to property they acquire after registering, but not as to property they acquired before registering).

As is the case with married couples, property acquired before registration of the domestic partnership, or property acquired during the domestic partnership but acquired by gift, bequest, devise or inheritance, is separate property. Property acquired during the period of the partnership by either of the domestic partners (unless acquired by gift, bequest, devise or inheritance) is considered to be community property.

Under current law, if a married person holds title to real property in their own name and there is nothing in the Auditor's office reflecting the interest of their spouse, if the titled spouse conveys the property to a third party for fair value who didn't know of the other spouse's interest, the third party gets the property despite any claims of the non-titled spouse. For example, assume Robert and Elaine Snoot are married and Robert acquires a hunting cottage in his own name using community funds. If Robert conveys the cottage to a third party who paid full value and didn't know of Elaine's interest, Elaine can not make a claim to the property. However, if Robert's best friend Jim buys the cottage, and Jim knew that Robert was married, Elaine may be able to make a claim to the property. These rules now apply to domestic partners as well. Note that the non-titled spouse or domestic partner can protect their rights by recording a notice of their community property interest in the property in the Auditor's office.

VESTING

When different gendered couples come to us as buyers and claim to be married it has been our practice to list them on the deed as "husband and wife" without confirming their marital status. When same gendered couples come to us claiming to be domestic partners and ask us to list them as domestic partners on their deed, we will also not attempt to confirm that they qualify for that status. We are merely preparing a deed at their direction and should have no liability for misstating the relationship of the grantees listed on the deed. If the grantees then execute a deed of trust or a deed the transaction will be valid so long as all listed grantees sign the deed of trust (irrespective of their relationship to one another).

Procedures for completing Schedule A of the title policy, however, will change. The policy should not insure the manner in which the parties hold title (though the prior practice of including the phrase "husband and wife" in Schedule A probably suggested such coverage). When completing the line in Schedule A listing the current owner or the insured, you should either (a) completely omit any reference to the relationship of the parties or the manner in which they hold title (e.g., "joint tenants" "tenants in common" etc.), or (b) quote the language from the deed itself. Examples of how Schedule A should read are as follows:

Mark L. Smith and Susan P. Smith.

Mark L. Smith and Susan P. Smith who acquired title by deed reciting: "Mark L. Smith and Susan P. Smith, husband and wife."

David C. Jones and William A. Carson, who acquired title by deed reciting: "David C. Jones and William A. Carson as Registered Domestic Partners."

Elizabeth J. Adams, Susan B. Albright and Steven P. Cross who acquired title by deed reciting: "Elizabeth J. Adams, Susan B. Albright and Steven P. Cross, tenants in common."

Robert Case, who acquired title by deed reciting: "Robert Case, a single man."

We also have various codes in the exceptions manual that need to be revised to reflect the new law. Suggested changes to the manual are indicated on the attachment. For affiliated offices, these changes to the codebook will be entered into your AIM system as soon as possible. Please contact me if you see other areas of the manual that also need revision.

DEEDS BY SPOUSES

When conveying community property, both domestic partners must join in signing the conveyancing document (deed, deed of trust, etc.). As with married couples, their signatures must be on the same document (they can't separately execute different deeds to the same grantee).

Like married couples, one domestic partner can convey his or her interest in community property to the other domestic partner for the purposes of making the property the separate property of the other partner. Because of the way the statutes are written, these deeds should always be drawn so that both spouses/domestic partners are listed as the grantors and both should execute the deed.

HOMESTEADRIGHTS

Domestic Partners can claim homestead rights in the separate property of their domestic partner. Therefore, if your transaction involves residential property that is the separate property of one of the domestic partners, you must obtain the signature of the non-titled domestic partner on the deed or deed of trust (unless the non-titled domestic partner has previously executed a deed in favor of the titled domestic partner). These are the same rules that apply to married persons.

JOINT OWNERSHIP

Domestic partners, like spouses, can hold title as joint tenants or tenants in common. However, there is a strong presumption that property acquired by married persons or domestic partners during the course of their marriage or partnership is community property. To overcome this presumption, the deed must clearly indicate that the parties did not intend to hold the property as community property. Therefore, a deed to John Smith and Todd Evers would be presumed to create a community property interest if John and Todd were domestic partners at the time. Also, a deed to "John Smith and Todd Evers as domestic partners and Steven and Melissa Gompers, a married couple" would create two ½ interests as tenants in common. The first half would be held by John and Todd as community property and the second half would be held by Steven and Melissa as community property.

Washingtoncourts have traditionally required very explicit use of the phrase "joint tenancy with rights of survivorship" in order to create a joint tenancy. A deed with the grantee clause reading "X and Y as domestic partners with rights of survivorship" is problematic. The term "rights of survivorship" suggests a joint tenancy was intended. However, community property also includes certain rights of survivorship. Given the ambiguity and the presumption in favor of community property, such language would likely be interpreted to create a community property interest.

EXCISE TAX

Gifts of real property between domestic partners or as part of a termination of a domestic partnership are exempt from the real estate excise tax. Identical rules apply for transfers between married persons.

WILLS AND PROBATE

Upon the death of a domestic partner, one-half of the community property automatically passes to the surviving domestic partner and one-half is available for distribution through the deceased domestic partner's will. If a domestic partner dies intestate (without a will), the surviving domestic partner is treated the same as a surviving spouse and takes a share of the deceased's separate property. This share is 75% if the decedent left no surviving children and 50% if there are surviving children. If you are relying on these provisions when the decedent's estate has not been probated, you must confirm with the Secretary of State that the parties were registered domestic partners at the time of the death. We will be revising the Lack of Probate Affidavit to reflect the new law.

If a person executes a will at the time they are a registered domestic partner and thereafter the domestic partnership terminates, any provision in a will in favor of an ex-domestic partner is revoked unless the will expressly says the original provision is to be recognized despite the termination. Also, if a person enters into a domestic partnership after executing a will, and the will fails to provide for the surviving domestic partner, the surviving domestic partner will nevertheless be treated as a surviving spouse unless the will provides to the contrary.

POWERS OF ATTORNEY

One domestic partner may name the other as their attorney in fact under a power of attorney. However, a termination of the partnership will revoke the authority granted under the power of attorney (unless the document explicitly provides that the authority of the attorney in fact survives the termination of the partnership). Therefore, if you are asked to rely on a power of attorney naming a domestic partner as the attorney in fact, you must inquire as to whether the partnership has been terminated.

If you have any questions concerning this matter, please contact:

Derek Matthews
Regional Claims Counsel, Region C & F
Associate Senior Underwriting Counsel
330 Madison Ave. S., Suite 201
Bainbridge Island, WA 98110
Phone: 206-770-8846
E-mail: Derek.Matthews@stewart.com

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.