Our Customer Service Department has received many calls recently about our California Domestic Partnership Addendum ("Addendum") to Uniform Residential Loan Application (Form 1003). Many of you have noticed that the document generates on all California loans and inquired into the purpose of this Addendum.

We prepared the Addendum in response to the enactment of a California statute that applies to domestic partnerships. Beginning January 1, 2005, Section 297.5 of the California Family Code now extends the rights and duties of spouses to persons registered as domestic partners in California upon the filing with the California Secretary of State of a Declaration of Domestic Partnership. (Click here for more information.) In other words, domestic partners registered with the California Secretary of State will be presumed to have a community property interest in the property of their domestic partner provided that the partners meet all of the requirements for a domestic partnership. This means that a non-borrowing domestic partner whose domestic partnership is registered in California will be presumed to have a community property interest in the real property of the borrowing domestic partner that will secure repayment of the loan transaction regardless of whether the non-borrowing partner holds, or will hold, legal title to that property.

Additionally, a legal union of two persons of the same sex, other than marriage, that is validly formed in another jurisdiction and that is substantially equivalent to a domestic partnership under California law is recognized as a valid domestic partnership in California regardless of whether it bears the name domestic partnership.

Because California is a community property state, creditors routinely inquire into an applicant's marital status. Now, many lenders have adopted a policy of inquiring into the domestic partnership status of the applicant. The Addendum is for use by those lenders who have a policy of inquiring into the domestic partnership status of the borrower during the application process.

Those lenders that have such a policy may elect to use the Addendum to Form 1003. The Addendum requests that the Borrower indicate whether he or she is involved in a domestic partnership registered with the State of California or part of a legal union formed in another jurisdiction. If the Borrower is involved in a registered California domestic partnership or part of a legal union formed in another jurisdiction (such as Vermont), a lender may use this information and, provided the lender's internal policy mandates such action, require the borrower's domestic partner to also sign the deed of trust or other security instrument (and perhaps other related loan documents) that secures repayment of the subject loan.1

A lender may require the non-borrowing domestic partner to sign a security instrument and related loan documents to protect the lender's security interest in the event the borrowing domestic partner defaults on the loan. If the non-borrowing domestic partner does not sign the security instrument to indicate his or her consent to the granting of a security interest in the borrower's real property, and the borrower defaults, a lender's foreclosure action against the borrower could be impaired. The domestic partner's presumed community property interest in the real property that is security for the loan could potentially cloud title to the property, preventing the conveyance of clear title to the property resulting from the lender's foreclosure action. Thus, some lenders will require the non-borrowing domestic partner to sign the security instrument to avoid any cloud on title should a foreclosure take place. (Note that a title company, for title insurance reasons, may instead require the non-borrowing domestic partner to quitclaim his or her interest in the secured property just as a spouse would do, if the borrower were claiming the secured real property to be his or her separate property.)

If lenders do not have a policy of inquiring into the domestic partnership status of the borrower, then the Addendum may be simply set aside when DocMagic generates the document.

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Melanie A. Feliciano is Assistant General Counsel of Document Systems, Inc. and a member of its Compliance Department.