(PA) Prenup/Promissory Notes

[OttawaBenators22]

Jurisdiction

Pennsylvania

Hello. Trying to fully understand the law ob personal promissory notes to understand the validity of notes I'm attached to. Before my wife and I got married, we bought a property that was in both our names (would assume we both have equity in it since technically not marital property). My MIL gave us a nice chunk of money for thr down payment and remodeling. It was not a gift but my wife and I signed promissory notes. However, my MIL did not sign the notes. The confusion is that in the prenup it states that my wife and I entered into agreement with my MIL for the sum of money and referencing the promissory notes that are tied to the property. The only repayment clause stated are selling the house, refinancing the mortgage, or on/before 90 days if she demands the judgement. There is no interest or payment schedule. The question I'm curious about is that she did not sign the notes (and her lawyer told her she didn't need to). I've been reading for promissory notes to be valid, both parties must sign. I wasn't sure if the clause in the prenup supercedes her signing the notes.

 

[army judge]

The question I'm curious about is that she did not sign the notes (and her lawyer told her she didn't need to). I've been reading for promissory notes to be valid, both parties must sign. I wasn't sure if the clause in the prenup supercedes her signing the notes.

The ONLY way your questions can be answered are IF you take the initiative and retain the services of a PA licensed attorney.

Seeking free answers about important marital, financial, or other legal matters from anonymous internet entities isn't wise.

 

[adjusterjack]

I wasn't sure if the clause in the prenup supercedes her signing the notes.

What's your goal?

Are you getting divorced?

Are you intending to leave the marriage with half the equity of the home, leaving your wife with the debt to her mother?

 

[OttawaBenators22]

What's your goal?

Are you getting divorced?

Are you intending to leave the marriage with half the equity of the home, leaving your wife with the debt to her mother?

Our marriage is on the fritz so just trying to get all my facts together before the hammer fully drops. In the process of trying to get actual legal counsel so gathering all my paperwork and financial details. Not trying to leave my wife with the debt, I just know my MIL will be ruthless so trying to protect myself.

 

[adjusterjack]

You are bound by what you signed, regardless of whether it's the promissory note or the or the pre-nup.

There is rule in American law that one cannot profit by another's mistake.

Beyond that, in a divorce, courts don't allow an inequitable division of assets and liabilities.

The court is likely to ignore the lack of the mother's signature (a technicality) in favor of an equitable distribution.

The two of you got the money and bought a house with it. That debt will have to be addressed during the divorce. There are a variety of ways to approach it. She gets the debt to her mother and you get an equivalent amount of debt. Or you cede something of value to cover your half of the obligation. Or you sell the house and the mother gets paid out of the sale and you split the rest. Or, you buy out your wife's interest for enough to cover her half of the equity plus the debt. Or she buys out your interest for less than half the equity to cover the debt.

There may be more ways to handle it but rest assured, it's going to be handled. It doesn't just disappear because of a lack of a signature.

 

[adjusterjack]

New post from OttawaBenators22:

Wife and I bought a house last year. We were going to sell our prior house at the time (bought prior to marriage but both names on title) but my MIL wanted us to hold onto it due to her investing a good chunk of money into it (we got promissory notes signed on it). Instead, she gifted us (with signed gift letter so no repayment required) what we would've gotten as proceeds from the sale. In exchange, we would eventually turn that property over to her (verbal, nothing signed) either through mortgage assumption (was too expensive) or her paying off the mortage and us gifting it to her. A year later, verge of divorce, property still has my name attached to. Given equitable distribution state, do I still have a stake in that property (minus owed promissory debt) or can the agreement to hand it over in exchange for the gift money be used as argument? I aak because I would try to argue to hold on to my current house and offer buying out my spouse in exchange for giving up the equity in the old house (which is more than our current house due to lower mortgage). Trying to understand my potential bargaining chips if things turn ugly.

Response from Army Judge:

"Lawyer Apprehension"
Wait patiently and silently for your Lawyer;
Don't allow yourself to become angry, while you wait on your mouthpiece,
Be strong and of good cheer, while not becoming a blabbermouth;
Wait, wait patiently for your Lawyer to save you.

Response from Zddoodah:

A verbal agreement to transfer real property is not enforceable.

Response from Zigner:

Not only that, but there is a writing stating that the funds were a gift.


Moderator note to OttawaBenators22:

Please keep the discussion in this thread. It's all one topic. I've deleted the other thread to avoid parallel discussions. Thank you for your cooperation.

 

[Zigner]

It's too bad they collectively conspired to commit mortgage fraud.

 

[army judge]

It's too bad they collectively conspired to commit mortgage fraud.

 

[OttawaBenators22]

It's too bad they collectively conspired to commit mortgage fraud.

Please elaborate. No fraud was ever intended. We did everything properly.

 

[adjusterjack]

Reading between the lines I think OttawaBenators22 wants to figure out how to avoid paying his mother-in-law back concurrent with the divorce.

That right OB22?

 

[OttawaBenators22]

Reading between the lines I think OttawaBenators22 wants to figure out how to avoid paying his mother-in-law back concurrent with the divorce.

That right OB22?

That would've been nice, yes. Goal is to not get bullied out of everything in the divorce. I made stupid mistakes in disowning my family for my spouse so i have no support system. My MIL and I actually get along well, but she knows im unhappy so despite all the horrible things my wife said about her mother, she'd still protect her daughter which is expected. My goal is to walk away with a roof over my head, my dogs, and money to pay my bills. My MIL already talked about our divorce and selling our current house so she can get her money back, the money she GIFTED (with paperwork). I meet with my lawyer Monday so my goal is understanding my potential equity in the house we bought pre marriage but all mortgage payments were paid from our joint account and both names on mortgage and deed. She gifted us the profit we expected to get from the first house in return for eventually giving her that property (by legal means). But now at this stage, if I have equity and verbal agreements arent enforceable, I have leverage since Ive been the higher income earner. I can only lose in this divorce, but if i can minimize it, then thats a win to me. My buddy lives in WA state and is going through a divorce and had to file for bankruptcy. I worked too hard to do that.

 

[adjusterjack]

My MIL already talked about our divorce and selling our current house so she can get her money back, the money she GIFTED (with paperwork).

Wait a minute. Big fat contradiction here. You originally wrote:

My MIL gave us a nice chunk of money for the down payment and remodeling. It was not a gift but my wife and I signed promissory notes.

What "paperwork" do you have, from your MIL, that says it was a gift?

 

[OttawaBenators22]

Wait a minute. Big fat contradiction here. You originally wrote:



What "paperwork" do you have, from your MIL, that says it was a gift?

That's our first house. Which is still in my wifes and mine names we bought 2 months before marriage. That was 8 years ago. Last Feb we bought our current house that my MIL gifted us money for for not selling the 1st house in agreement we would eventually turn the property over to her (never did). We rent that property out.

We have 2 properties. First one we jointly bought pre marriage with downpayments my MIL gave via promissory note and then remodeled via promissory note. We were going to sell that property to buy our current home but MIL GIFTED us our expected profit with acknowledgement we'd rent out property and she would eventually own it (still hasnt).

So we have 1 property marital property with gift letter, 1 property potential joint equity with promissory notes and all mortgage paid via joint account. That's my legal dillemma is that 1st property. If i have leverage in that, i may not be bullied out of everything because my MIL thinks everything is hers.

 

[adjusterjack]

Let's see if I have this straight.

The first house, 8 years ago, jointly owner by you and your, then, not wife. That's the house with two promissory notes to her mother that you both signed but that her mother didn't. That's also the house referred to in the pre-nup.

Is it the promissory notes that include the following provision or the pre-nup, or both. Let's clear that up before we go on.

Another question about the promissory notes. Are they secured by the property? Did the promissory notes create a recorded lien on the property, like a mortgage does?

And who is "she" in that clause?

And what do you mean by "demands a judgment." Nobody "demands" a judgment. One sues and gets a judgment and then enforces the judgment if at all possible.

The only repayment clause stated are selling the house, refinancing the mortgage, or on/before 90 days if she demands the judgement.

Would you post copies of the promissory notes. Redact any identifying information. It's best to read the exact wording.

Meantime, read the following article that explains that there are often exceptions to a signature requirement and your promissory notes may fall into an exception by implication if not specificity.

https://www.wolfbaldwin.com/articles/commercial-litigation-articles/the-statute-of-frauds-for-real-estate-and-the-sale-of-goods-in-pennsylvania/

 

[OttawaBenators22]

Here you go. I have no doubt the note is fine. I'm sure the lawyer on Monday will tell me the same. My focus now is understanding and hoping I have equity in that first house even though it's not official marital property but based on laws I read said I should have equity.

 

[adjusterjack]

My opinion is that of a layman, not an attorney.

With regard to the first house:

1 - The pre-nup is an enforceable contract between you and your wife unless it qualifies as unenforceable per PA Title 23 Section 3106:

Title 23

www.legis.state.pa.us

2 - Even if you can get the pre-nup set aside, that would have no effect on the promissory notes which are contracts that are binding on you and your wife for the repayment of the money to her mother.

3 - While contracts are generally signed by both parties, performance by a party can often be evidence that the contract is enforceable. In other words, you and your wife got the money and signed the contracts agreeing to pay the money back when certain events occurred. Your MIL did not have to sign because, giving you the money is evidence of her agreement to the terms of the promissory note.

4 - The promissory notes did not create a lien on the first house so if you and your wife renege on paying it back, your MIL cannot foreclose on the house. All she can do is sue the two of you for the money. Because the two of you are "jointly and severally" liable for the loan, your MIL can elect to sue only you.

Now on to the second house.

We were going to sell that property to buy our current home but MIL GIFTED us our expected profit with acknowledgement we'd rent out property and she would eventually own it (still hasnt).

When a mortgage company agrees to allow a borrower to use a gift for the down payment, it requires a gift letter from the giver attesting that the gift is unequivocal and that there is no agreement on the part of the receiver to pay it back or perform any obligations in exchange for the gift.

The "acknowledgment" that the MIL would get the first house is not only unenforceable but could lead to criminal prosecution of you and your wife for mortgage fraud.

A PA woman was convicted of mortgage fraud last year for her part in a scheme using fraudulent gift letters.

Women Sentenced For Fraudulent Gift Letters In Support of Mortgage Loan Applications | Mortgage Fraud Blog

The following advice is based on personal divorce experience. Get yourself a lawyer and file for divorce. The one who files first often has the advantage.

 

[OttawaBenators22]

We have a signed legal gift letter that was part of the mortgage process. We were looking into legal routes to turn the first house over to her.

Thankfully the prenup does not state what happens to the first house in the instance of a divorce. All it state is that we were given money for the down payment and remodeling as promissory notes attached to the prenup.

 

[adjusterjack]

We were looking into legal routes to turn the first house over to her.

The second house purchase is so far removed from the first house purchase that it is unlikely that the current mortgage company would find out that you gave the house to the MIL.

But you wouldn't actually be "giving" the house since there is a mortgage on it that somebody is going to have to continue paying on. There is also the risk that a "due on sale" provision could be activated, if there is one. Better check that mortgage contract.

 

[OttawaBenators22]

The second house purchase is so far removed from the first house purchase that it is unlikely that the current mortgage company would find out that you gave the house to the MIL.

But you wouldn't actually be "giving" the house since there is a mortgage on it that somebody is going to have to continue paying on. There is also the risk that a "due on sale" provision could be activated, if there is one. Better check that mortgage contract.

As noted we had looked into her assuming the mortgage. The issue was with mortgage assumption is that she would have to cover the difference of what the initial mortgage was for vs what is left. That was too expensive. Other path was her getting us the money to pay off the mortgage completely and then we would transfer it over to her (requires a real estate lawyer). Regardless I got 2 houses on my credit so if I do go through with the divorce, my DTI is going to look like crap if I try to refinance my current house to buy my wife out. That's why I'm hoping for equity in the first house so that I can use it as a bargaining chip to trade that equity for clearing the promissory note and the equity my wife house in our current house. Monday should hopefully get me those answers because I just want to be able to have leverage and talking points so if the divorce is decided, we can do it without lawyers so we both dont go broke.

 

[adjusterjack]

I'm hoping for equity in the first house

You can find out your approximate equity in both houses in about 10 seconds by googling the addresses. Zillow and other realtor sites will come up with an approximate market value.

Take an average and subtract the mortgage balance and there's your equity.

I just want to be able to have leverage and talking points so if the divorce is decided, we can do it without lawyers so we both dont go broke.

Your desire for "leverage" almost guarantees that she will get a lawyer who will run rings around you unless you have one.

Divorce never ends well. I've been through it. My daughter is getting divorced. Her husband's income is 3 times hers. She has a lawyer from the getgo. Now he has one. It's going to be a mess.

I'm guessing yours will be a mess. Especially the mother in law issues.