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Parents Onwn House,... Sort of...
Hi - Silly question, How do we treat unsecured judicial liens in a chapter 13 plan where debtor is property owner? Do they have to be paid in full as secured or classified as unsecured because no equity to attach to? Thanks.
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Hi Jeffery:
Erm maybe I'm just really naive and I'm completely blowing it. . . but. . .
. .
I have run across similar situations wherein i included in the bankruptcy.
Without admitting to anything (hahahahaha) I believe your situation could be
handled this way:
The family has a verbal agreement for a lease option to purchase for which
they paid $80,000 for the right to lease at the price of the mortgage, care
and maintenance of the home, as well as payment of property taxes and
insurance. The children retain the right of first refusal to purchase the
house from the parents at the balance of the existing mortgage. This then
is an executory contract under Schedule G for which they will assume because
of the $80,000 investment in May, 2009. The present value of the contract
is worthless now because no one is going to pay for a right to buy the house
and live in it. And the contract is necessary for the fresh start for the
debtors.
As a side note: I would watch out more closely for whether there is a time
limit that the parents would have had to live in the property as part of
their loan agreement. Most require one year to live in property. However I
have seen some state that they had to have obtained the loan "with a present
intention to live in the home." This does not bar a borrower from deciding
to rent it to their children.
If the debtors can hold on until May 2010 to file the bankruptcy under
chapter 7 I suspect they ultimately would be better off, so it doesn't look
like they gave their parents $80,000 as an insider transaction to hide
assets. Perhaps the family would like to memorialize their agreement in a
writing, but that does raise a statute of frauds issue. The verbal
agreement is not in writing so its not enforceable against the parents if
the trustee were to go after the lease option to purchase as an asset.
(Contract where performance is more than one year).
FINALLY: The best bet is to wait the year if possible. In the meantime
file general denials if the credit card companies decide to sue. Just don't
let those lawsuits go to judgment and create liens against your clients. It
will create way too much bankruptcy work avoiding the judgment liens.
Okay enough of my mindless ramblings.
R.Grace.Rodriguez
. The lease agreement provides that the children pay the " agreement
purchased
On Tue, Jan 26, 2010 at 6:35 PM, jbsesq1965 wrote:
>
>
> PCs wanted to purchase a home in May of 2009 with an $80,000 down payment.
> Right before escrow closed, the bank withdrew its funding commitment. PC's
> asked their parents for help. Parents stepped in and purchased the house in
> parents name with PC's $80,000 down payment. The down payment was paid
> directly into escrow (it did not go to the parents first and then into
> escrow).
>
> Since the purchase, PC's have made all of the payments directly to the
> lender, have paid insurances and property taxes directly to those creditors
> and have made improvements to the property from their own funds. PC's
> consider the house theirs and have a verbal agreement with parents that the
> house belongs to them. PC wife lost her job at the end of summer and the
> PC's are now struggling with significant credit card debt.
>
> As it stands now, parents are on title to the house, and the loan. Because
> PC's have 4 children and only one income they will NOT need a mortgage
> deduction to pass the means test.
>
> Part of me says that filing the bankruptcy as it stands now is no problem
> because the debtors do not own legal title to the property and the mortgage
> payments that may have been made in the last 90 days are not a significant
> enough preference to interest a Chapter 7 Trustee.
>
> However, another part of me is very nervous about the $80,000 down payment
> that was paid into escrow last May from the debtor's funds. If the debtors
> do not acknowledge an ownership interest in the house wouldn't the $80,000
> payment into escrow constitute a fraudulent conveyance in favor of the
> parents (even though they did not directly receive the funds) because they
> benefited from the down payment when they (parents) acquired title to the
> house?
>
> My tentative advice to the clients (subject to input from this group) is to
> have the parties memorialize the true nature of the agreement with the
> parents, now, in the form of a Promissory Note in favor of the parents that
> obligates the debtors to continue making payments to the lender, a
> corresponding all inclusive Deed of Trust (sometimes called a Wrap Around
> Deed) for the amount of the loan owed to the mortgage company (but no more)
> and a Grant Deed to PC's. The Promissory Note and Deed of Trust in favor of
> the parents might technically be a "preference" but since the debtors will
> have received value from the parents concurrent with that transaction (the
> Deed to the property and the corresponding equity), I think the preference
> is defendable and there are no fraudulent conveyance issues. The debtors can
> exempt any equity in the property with their homestead.
>
> Does anyone disagree with this analysis or see any landmine? Thank you for
> your input.
>
> Jeffrey B. Smith
>
>
>
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Jeff:
I suggest Mom and Dad deed an interest in the property to the kids. If the percentage interest deeded is equal to the down payment, the 548 conveyance is repaid, debtor's on title and then can take homestead.
There is a risk of a due on sale clause being enforced, but given the current real estate market, I think the risk is low.
I would explain the due on sale risk, then the fraudulent transfer risk, and let them choose which risk to take.
dennis
The post was migrated from Yahoo.
charset="windows-1251"
Hey, why not convey a partial interest in the home reflecting the percentage
of value "owned" by the potential client?
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
Mark T.Jessee
Sent: Tuesday, January 26, 2010 10:35 PM
To: cdcbaa@yahoogroups.com
Subject: Re: [cdcbaa] Parents Onwn House,... Sort of...
Was all of this disclosed to the lender at the time the home was purchased
or where there representations that it was all for the parents? If the
representation was that downpayment was parents, parents will occupy, etc. I
would be concerned about those false representations being exposed. Whether
the lender was aware of it or not, the truth is that the parents were the
proverbial straw man for the purchase on behalf of pc's. You would need to
disclose the details of the transaction in any filing and assert the pc's
have an interest in the property, even if not on legal title. Prentending
the pc's have no interest in the property because they are not on legal
title would be a false representation, hiding and asset, etc. which would
endanger pc's to 727(a) cause of action, potential criminal prosecution and
open counsel to exposure from the courts, pc's and the state bar.
While I think everything needs to be disclosed, I am not sure it is
necessary to convey legal title to the pc's in order for them to claim the
property as their homestead and exempt it accordingly. (Especially if the
pc's are deducting the mortgage interest for the trust deed payments as
towards their pesonal residence.) I would also be concerned that If the
property title is conveyed from the parents to the pc's there may be an
acceleration clause of the entire balance due contained in the note for the
money borrowed by the parents because of the change in title. I would scour
the note and deed of trust thoroughly for such clauses.
Mark T. Jessee
Law Offices of Mark T. Jessee
"A Debt Relief Agency"
50 W. Hillcrest Drive, Suite 200
Thousand Oaks, CA 91360
(805) 497-5868
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On Tue 26/01/10 6:35 PM , "jbsesq1965" jsmith@cgsattys.com sent:
PCs wanted to purchase a home in May of 2009 with an $80,000 down payment.
Right before escrow closed, the bank withdrew its funding commitment. PC's
asked their parents for help. Parents stepped in and purchased the house in
parents name with PC's $80,000 down payment. The down payment was paid
directly into escrow (it did not go to the parents first and then into
escrow).
Since the purchase, PC's have made all of the payments directly to the
lender, have paid insurances and property taxes directly to those creditors
and have made improvements to the property from their own funds. PC's
consider the house theirs and have a verbal agreement with parents that the
house belongs to them. PC wife lost her job at the end of summer and the
PC's are now struggling with significant credit card debt.
As it stands now, parents are on title to the house, and the loan. Because
PC's have 4 children and only one income they will NOT need a mortgage
deduction to pass the means test.
Part of me says that filing the bankruptcy as it stands now is no problem
because the debtors do not own legal title to the property and the mortgage
payments that may have been made in the last 90 days are not a significant
enough preference to interest a Chapter 7 Trustee.
However, another part of me is very nervous about the $80,000 down payment
that was paid into escrow last May from the debtor's funds. If the debtors
do not acknowledge an ownership interest in the house wouldn't the $80,000
payment into escrow constitute a fraudulent conveyance in favor of the
parents (even though they did not directly receive the funds) because they
benefited from the down payment when they (parents) acquired title to the
house?
My tentative advice to the clients (subject to input from this group) is to
have the parties memorialize the true nature of the agreement with the
parents, now, in the form of a Promissory Note in favor of the parents that
obligates the debtors to continue making payments to the lender, a
corresponding all inclusive Deed of Trust (sometimes called a Wrap Around
Deed) for the amount of the loan owed to the mortgage company (but no more)
and a Grant Deed to PC's. The Promissory Note and Deed of Trust in favor of
the parents might technically be a "preference" but since the debtors will
have received value from the parents concurrent with that transaction (the
Deed to the property and the corresponding equity), I think the preference
is defendable and there are no fraudulent conveyance issues. The debtors can
exempt any equity in the property with their homestead.
Does anyone disagree with this analysis or see any landmine? Thank you for
your input.
Jeffrey B. Smith
charset="windows-1251"
Message
Hey, why not convey a
partial interest in the home reflecting the percentage of value "owned" by the
potential client?
David A.
Tilem
Certified Bankruptcy
Specialist*
The post was migrated from Yahoo.
charset="windows-1251"
I agree with your analysis completely.
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
jbsesq1965
Sent: Tuesday, January 26, 2010 6:35 PM
To: cdcbaa@yahoogroups.com
Subject: [cdcbaa] Parents Onwn House,... Sort of...
PCs wanted to purchase a home in May of 2009 with an $80,000 down payment.
Right before escrow closed, the bank withdrew its funding commitment. PC's
asked their parents for help. Parents stepped in and purchased the house in
parents name with PC's $80,000 down payment. The down payment was paid
directly into escrow (it did not go to the parents first and then into
escrow).
Since the purchase, PC's have made all of the payments directly to the
lender, have paid insurances and property taxes directly to those creditors
and have made improvements to the property from their own funds. PC's
consider the house theirs and have a verbal agreement with parents that the
house belongs to them. PC wife lost her job at the end of summer and the
PC's are now struggling with significant credit card debt.
As it stands now, parents are on title to the house, and the loan. Because
PC's have 4 children and only one income they will NOT need a mortgage
deduction to pass the means test.
Part of me says that filing the bankruptcy as it stands now is no problem
because the debtors do not own legal title to the property and the mortgage
payments that may have been made in the last 90 days are not a significant
enough preference to interest a Chapter 7 Trustee.
However, another part of me is very nervous about the $80,000 down payment
that was paid into escrow last May from the debtor's funds. If the debtors
do not acknowledge an ownership interest in the house wouldn't the $80,000
payment into escrow constitute a fraudulent conveyance in favor of the
parents (even though they did not directly receive the funds) because they
benefited from the down payment when they (parents) acquired title to the
house?
My tentative advice to the clients (subject to input from this group) is to
have the parties memorialize the true nature of the agreement with the
parents, now, in the form of a Promissory Note in favor of the parents that
obligates the debtors to continue making payments to the lender, a
corresponding all inclusive Deed of Trust (sometimes called a Wrap Around
Deed) for the amount of the loan owed to the mortgage company (but no more)
and a Grant Deed to PC's. The Promissory Note and Deed of Trust in favor of
the parents might technically be a "preference" but since the debtors will
have received value from the parents concurrent with that transaction (the
Deed to the property and the corresponding equity), I think the preference
is defendable and there are no fraudulent conveyance issues. The debtors can
exempt any equity in the property with their homestead.
Does anyone disagree with this analysis or see any landmine? Thank you for
your input.
Jeffrey B. Smith
charset="windows-1251"
Message
I agree with your analysis
completely.
David A.
Tilem
Certified Bankruptcy
Specialist*
The post was migrated from Yahoo.
Was all of this disclosed to the lender at the time the home was
purchased or where there representations that it was all for the
parents? If the representation was that downpayment was parents,
parents will occupy, etc. I would be concerned about those false
representations being exposed. Whether the lender was aware of it or
not, the truth is that the parents were the proverbial straw man for
the purchase on behalf of pc's. You would need to disclose the
details of the transaction in any filing and assert the pc's have an
interest in the property, even if not on legal title. Prentending the
pc's have no interest in the property because they are not on legal
title would be a false representation, hiding and asset, etc. which
would endanger pc's to 727(a) cause of action, potential criminal
prosecution and open counsel to exposure from the courts, pc's and the
state bar.
While I think everything needs to be disclosed, I am not sure it is
necessary to convey legal title to the pc's in order for them to claim
the property as their homestead and exempt it accordingly.
(Especially if the pc's are deducting the mortgage interest for the
trust deed payments as towards their pesonal residence.) I would also
be concerned that If the property title is conveyed from the parents
to the pc's there may be an acceleration clause of the entire balance
due contained in the note for the money borrowed by the parents
because of the change in title. I would scour the note and deed of
trust thoroughly for such clauses.
Mark T. Jessee
Law Offices of Mark T. Jessee
"A Debt Relief Agency"
50 W. Hillcrest Drive, Suite 200
Thousand Oaks, CA 91360
(805) 497-5868
NOTICE TO RECIPIENT: THIS E-MAIL IS MEANT FOR ONLY THE INTENDED
RECIPIENT OF
THE TRANSMISSION, AND THIS COMMUNICATION IS INTENDED TO BE
PRIVILEGED BY
LAW. IF YOU RECEIVED THIS E-MAIL IN ERROR, ANY REVIEW, USE,
DISSEMINATION,
DISTRIBUTION, OR COPYING OF THIS E-MAIL IS STRICTLY PROHIBITED.
PLEASE NOTIFY
US IMMEDIATELY OF THE ERROR BY RETURN E-MAIL AND PLEASE DELETE THIS
MESSAGE FROM YOUR SYSTEM. THANK YOU IN ADVANCE FOR YOUR COOPERATION.
On Tue 26/01/10 6:35 PM , "jbsesq1965" jsmith@cgsattys.com sent:
PCs wanted to purchase a home in May of 2009 with an $80,000 down
payment. Right before escrow closed, the bank withdrew its funding
commitment. PC's asked their parents for help. Parents stepped in and
purchased the house in parents name with PC's $80,000 down payment.
The down payment was paid directly into escrow (it did not go to the
parents first and then into escrow).
Since the purchase, PC's have made all of the payments directly to
the lender, have paid insurances and property taxes directly to those
creditors and have made improvements to the property from their own
funds. PC's consider the house theirs and have a verbal agreement with
parents that the house belongs to them. PC wife lost her job at the
end of summer and the PC's are now struggling with significant credit
card debt.
As it stands now, parents are on title to the house, and the loan.
Because PC's have 4 children and only one income they will NOT need a
mortgage deduction to pass the means test.
Part of me says that filing the bankruptcy as it stands now is no
problem because the debtors do not own legal title to the property and
the mortgage payments that may have been made in the last 90 days are
not a significant enough preference to interest a Chapter 7 Trustee.
However, another part of me is very nervous about the $80,000 down
payment that was paid into escrow last May from the debtor's funds. If
the debtors do not acknowledge an ownership interest in the house
wouldn't the $80,000 payment into escrow constitute a fraudulent
conveyance in favor of the parents (even though they did not directly
receive the funds) because they benefited from the down payment when
they (parents) acquired title to the house?
My tentative advice to the clients (subject to input from this
group) is to have the parties memorialize the true nature of the
agreement with the parents, now, in the form of a Promissory Note in
favor of the parents that obligates the debtors to continue making
payments to the lender, a corresponding all inclusive Deed of Trust
(sometimes called a Wrap Around Deed) for the amount of the loan owed
to the mortgage company (but no more) and a Grant Deed to PC's. The
Promissory Note and Deed of Trust in favor of the parents might
technically be a "preference" but since the debtors will have received
value from the parents concurrent with that transaction (the Deed to
the property and the corresponding equity), I think the preference is
defendable and there are no fraudulent conveyance issues. The debtors
can exempt any equity in the property with their homestead.
Does anyone disagree with this analysis or see any landmine? Thank
you for your input.
Jeffrey B. Smith
Links:
[1] mailto:jsmith@cgsattys.com?subjectParents Onwn House,... Sort
of...
[2] mailto:cdcbaa@yahoogroups.com?subjectParents Onwn House,... Sort
of...
[3]
The post was migrated from Yahoo.
PCs wanted to purchase a home in May of 2009 with an $80,000 down payment. Right before escrow closed, the bank withdrew its funding commitment. PC's asked their parents for help. Parents stepped in and purchased the house in parents name with PC's $80,000 down payment. The down payment was paid directly into escrow (it did not go to the parents first and then into escrow).
Since the purchase, PC's have made all of the payments directly to the lender, have paid insurances and property taxes directly to those creditors and have made improvements to the property from their own funds. PC's consider the house theirs and have a verbal agreement with parents that the house belongs to them. PC wife lost her job at the end of summer and the PC's are now struggling with significant credit card debt.
As it stands now, parents are on title to the house, and the loan. Because PC's have 4 children and only one income they will NOT need a mortgage deduction to pass the means test.
Part of me says that filing the bankruptcy as it stands now is no problem because the debtors do not own legal title to the property and the mortgage payments that may have been made in the last 90 days are not a significant enough preference to interest a Chapter 7 Trustee.
However, another part of me is very nervous about the $80,000 down payment that was paid into escrow last May from the debtor's funds. If the debtors do not acknowledge an ownership interest in the house wouldn't the $80,000 payment into escrow constitute a fraudulent conveyance in favor of the parents (even though they did not directly receive the funds) because they benefited from the down payment when they (parents) acquired title to the house?
My tentative advice to the clients (subject to input from this group) is to have the parties memorialize the true nature of the agreement with the parents, now, in the form of a Promissory Note in favor of the parents that obligates the debtors to continue making payments to the lender, a corresponding all inclusive Deed of Trust (sometimes called a Wrap Around Deed) for the amount of the loan owed to the mortgage company (but no more) and a Grant Deed to PC's. The Promissory Note and Deed of Trust in favor of the parents might technically be a "preference" but since the debtors will have received value from the parents concurrent with that transaction (the Deed to the property and the corresponding equity), I think the preference is defendable and there are no fraudulent conveyance issues. The debtors can exempt any equity in the property with their homestead.
Does anyone disagree with this analysis or see any landmine? Thank you for your input.
Jeffrey B. Smith
The post was migrated from Yahoo.