Suppose that a commercial loan is being secured by a mortgage on Ohio property that is owned solely by the borrower, or by some other natural person. Does the owner’s spouse still need to sign the mortgage?
Most lenders know that the borrower’s spouse must sign if the spouse is the owner, or part owner, of the property. Out-of-state lenders may not realize that the spouse also needs to sign even if title to the property is solely in the borrower’s name, in order to release the spouse’s dower rights.
Ohio is one of the few states that still recognizes dower rights. In Ohio, dower is the right of the surviving spouse to a life estate in an undivided one-third of all real property that the deceased spouse owned at any time during the marriage. Dower is not a lien upon the land of the spouse who owns the property; dower is an interest in that land.
The Ohio Legislature has considered several bills to abolish dower. None so far has become law. Until dower is abolished, any mortgage by a married person should include a written release of dower by the property owner’s spouse. The loan application should contain a requirement that the non-title holding spouse sign a release of dower, even for commercial property.
The release is typically contained in the execution section of the mortgage. If the spouse does not hold title, it is not necessary that the spouse agree to take on all of the mortgage obligations. The release can be worded to make it clear that the spouse is only releasing dower rights, and is not agreeing to perform any of the mortgage obligations. The release must be signed and notarized with the same formalities as a deed.
If the mortgage is foreclosed and the dower rights were not released, the spouse is entitled to receive the fair market value of the dower interest. The court must wait until the sheriff’s sale is completed and calculate value of the dower based upon the sale price, using IRS mortality tables. The dower rights will have priority over the mortgage debt. Of course, if the property owner has died in the interim, the surviving spouse’s interest is now a life estate, and the value will be greater.
For similar reasons, a deed in lieu of foreclosure would also require a release of dower.
Dower terminates if:
• The spouse dies during the property owner’s lifetime;
• The marriage is ended by divorce or dissolution;
• The parties become legally separated; or
• The surviving spouse inherits the fee title and a certificate of transfer is issued. (Note that this last basis for termination has not yet been accepted in all counties.)
Without a release of dower, the lender is gambling that one of those terminating events would occur before the mortgage had to be foreclosed.
Business property is often owned by a limited liability company or a corporation. Dower usually is not relevant in those cases.
The laws of dower are too complex to cover in a single blog post. My practice includes helping out-of-state lenders and their counsel adapt their commercial loan documents and procedures for use in Ohio. I’m happy to help with language to meet Ohio’s dower requirements, or any other issue that may come up in connection with the loan. Our office also has extensive experience in litigating dower issues, and can assist with dower issues in connection with mortgage foreclosures.
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