A Life Estate situation

 

            A while ago I represented an individual who sold some real estate that he had gotten from his parents. Fifteen years earlier my client’s parents conveyed some property on Smith Mountain Lake to my client and his two brothers, however they retained a life estate. Two years later my client’s brothers released their remainder interest to my client, such that my client’s parents had a life estate with him being the remainder interest.

            Virginia follows the common law. At common law a “life estate” allows the owner of the life estate exclusive use of the property while they are alive. Upon their death, obviously, the life estate ends. The person who gets the property after the life estate is said to have a “remainder interest”, which is what my client had. Life estates can be created a number of ways, commonly in deeds either from someone conveying property to someone else and keeping a life estate or one person giving another a life estate with a remainder to a third person. You can imagine that lawyers have created multiple variations of this theme.

            The owner of a life estate can do anything they want to with the property and whatever they do will be effective for the rest of their life. If they sell the property then the person who buys it has the right to use the property as long as the seller lives (A has a life estate R is the remainder, A sells his life estate to B, B has the right to use the property as long as A lives, then R gets it).

            In this particular case, my client’s father had passed away, his mother still had a life estate and she goes to Wachovia Bank (now Wells Fargo) and they (being a stupid big box bank) give her an equity line loan on the property and secure it with a deed of trust (also called a mortgage) from her, only. If the loan had not been paid the bank could have foreclosed on the life estate. On death of my client’s mother if the bank had foreclosed the bank or whoever the bank sold it to in foreclosure would lose the property to my client.

            My client sold the property and the title insurance company, Fidelity American National Title, required that the Wachovia/ Wells Fargo deed of trust be released. Because it affected only a life estate it was not a lien on the property and never a lien on the interest my client held. But the title insurance company knew better than what the law is.

            My client and I refused to go through the nonsense of releasing something that did not need releasing. The poor settlement agent, who is actually a very good settlement agency and I refer people to them all the time, was stuck in the middle. I won that battle.