Buyer of house owing money after Chapter 7?

[ShastieC]

We Paid off our In-laws house, and transferred the deed to us on April 29th 2006. My In-laws filed Chapter 7 bankruptcy in June 06. For some reason the deed which was signed on April 29, 2006 did not get recorded till Oct. 2006. The US bankruptcy court trustee is now suing us for what the house is worth minus what we Paid for it. I currently have my mortgage company and attorney looking over the papers. I just wanted to know that since we have proof that we bought and signed the deed in April that everything is going to be ok, and we are not going to have to pay another 25,000 for this house? This is in Ohio.

[HHM]

This is a mess, I am sorry to say.

The main problem is that, you are an "insider" for BK purposes, and unless you paid "market" value for the house, (which, if all you did was pay off the note, you probably did not), then you are looking at a fraudulent transfer of assets under the BK code. Basically, your in laws kinda screwed you on this deal by filing Bk.

Your only defense is to show that, at the time you bought the house (regardless of when the title transferred), that what you paid was a fair price...if you can't do that, then you will have to pay the difference between market value and what you paid to the BK trustee.

[ShastieC]

Thanks for your help. What bothers me is we didn't know that they were going to file bankruptcy when we bought our house. We had been living here for 2 years, and took over the payments when we moved in and they moved out 2 years ago. When we finally had good enough credit we got a loan to pay off the rest of their loan. I would of never bought this house if I would of known this was going to happen. In my paper work it shows as a family transfer, and that we payed off the note. We also have proof of us paying the note for a few years so I hope that is enough to help us.

[ShastieC]

I also wanted to add that they considered this mortage a refinance since we were already paying on their mortgage for those few years. I sure hope all this paperwork will help us. I feel they should go after the seller not the buyer.

[HHM]

This is one of the crappier areas of the BK law, it usually effects businesses in chapter 11 cases...so it is not commonly employed in the consumer BK context. But that sad fact is, it doesn't matter that you didn't know they were going to file.

You may have some recourse...

If I were you, I would get a lawyer, and not your run of the mill BK lawyer (i.e. not a yellow pages BK lawyer), you need bankruptcy litigators which are usually with larger firms that handle chapter 11 cases.

[bige1030]

The US bankruptcy court trustee is now suing us for what the house is worth minus what we Paid for it.

(e)
....(1) A good faith transferee from whom the trustee may recover under subsection (a) of this section has a lien on the property recovered to secure the lesser of--
........(A) the cost, to such transferee, of any improvement made after the transfer, less the amount of any profit realized by or accruing to such transferee from such property; and
........(B) any increase in the value of such property as a result of such improvement, of the property transferred.

....(2) In this subsection, "improvement" includes--
........(A) physical additions or changes to the property transferred;
........(B) repairs to such property;
........(C) payment of any tax on such property;
........(D) payment of any debt secured by a lien on such property that is superior or equal to the rights of the trustee; and
........(E) preservation of such property.

IMHO you've got to be a "good faith transferee" - you clearly intended to help your in-laws out when they were in a bind. So if you end up having to pay, get out your receipts for all the money you put into the house before you go to court!

[hcii]

I don't know about Ohio, but here in Kentucky the date of transfer, not the date of recording is the actual one used. As a matter of fact, there is no law that states one must record anything in Kentucky for it to be a valid transaction. IOW, you could seel me a piece of real estate, and nothing requires me to have it recorded at the local courthouse. Most people do, however, for their protection in case the original is lost. That is the MAIN reason that it is done here.

I would think that if you have a deed transfer, and it was notarized, that date will be the one that rules. Like I said....I don't know about Ohio, but here the actual date of transfer, NOT date of recording, is the one that prevails.


hcii

[ShastieC]

Thank you for your responses. I have the attorney who helped us tranfer everything doing some work on this. We had lived here for 15 months before we even bought the place, we completely took over the in-laws house payment the day we moved in. They moved out one week after we moved in. That was back in Nov. 2004. I have all the cancelled checks showing we payed the loan payments while it was in their name, we payed the property taxes, house insurance etc. I am really down over this, and hope there is a light at the end of the tunnel.