Sell my share of a second home?

[btbeme]

Here is a good one for y'all...

We qualify in every way for a fairly smooth and uncomplicated Ch 7 except for one situation - would like anyone's feedback on whether the advice we received would hold water...

We own a second home out of state. The title for that home is held by five people - my mother (she lives there), myself, and three siblings. The mortgage on the house is held in my name exclusively. There is a good deal of equity in that house, likely $200k at fair market value. My prospective attorney had suggested that I sell my 20% legal share of the equity to another person on the title, thereby dropping from the title.

The proceeds from that sale of equity can then be distributed throughout my life prior to filing Ch 7, keeping it from being seized. He also says that the fair market value of my 20% share of the title is likely worth significantly less than true market value of the house, since I am selling a fraction rather than the whole thing - a buyer would be purchasing a SHARE, not the whole thing, making it a much less attractive purchase and a lower realistic value.

He says that the court is interested only in my assets. Since my asset is, in this case, a 20% share that I can sell, I tend to believe that his suggestion holds water - selling it at fair market value as a share of a home is both perfectly legal and a good idea.

I have two questions. First, has anyone seen or heard of this type of transaction being used and passing scrutiny of the court? Second, since i would drop from the title but retain the loan, what are the realistic chances that the mortgage holder would do a title search and call the note (even if payments were continued on-time)?

[Chowder]

First, has anyone seen or heard of this type of transaction being used and passing scrutiny of the court? Second, since i would drop from the title but retain the loan, what are the realistic chances that the mortgage holder would do a title search and call the note (even if payments were continued on-time)?

It's very common for folks to plan for a BK by living on assets until they are depleted.

Your second issue is a little more strange. As long as your siblings are making the payments directly to the bank, I can't see how it should be a problem.

[KarenFlorida]

I am in a similiar situation with an investment property jointly owned (listed on the title) with a family member. Are you on the actual title? I was told by my attorney that anything sold or quitclaimed to my family member within 2 years of filing bankruptcy would be regarded as a fraudulant transfer and would be reversed by the Trustee. Further, my attorney said they could deny the bankruptcy.

[DeadManCrawling]

Generally speaking, for KarenFlorida:

I believe that a fraudulent transfer only occurs if the asset is sold for less than market value, or if the funds form the asset are not accounted for in some fashion through bank statements or receipts.

Another fraudulent conveyance would be if the nonexempt asset were sold and converted to an exempt asset, such as selling a car and putting the money into a protected account, such as a 401(k).

Strangely though, Florida law offers one interesting, and unlimited exception: The homestead. There are many decisions, including one from the Florida Supreme Court that hold that you can deposit money into your homestead by way of buying one, improving one, etc, to an unlimited number, up to and including the day before bankruptcy. And the trustee cannot access the funds once they are in the home, even if it is clear that the intent was to place the funds beyond the reach of creditors.

I have links saved somewhere if you would like them to present to your attorney. Note, however, that one of the most persuasive cases was litigated in State Court only, for a civil case. It has not yet been tested in the BK court, which is federal and may take a different view. My attorney believes it would survive bankruptcy court, since it is based on BK decisions from every Florida District. It just has not come up in a BK case, as yet.

[KarenFlorida]

DeadManCrawling:

Thanks for the advice. What I wanted to do was to quit-claim the property over to the other family member who owns the investment property with me since she does not have the money to actually purchase my half of the property and cannot qualify for a loan to purchase it at "market value." I had inquired as to whether I could simply quit-claim it over to her, and he said no, that would be regarded as a fraudulant transfer if completed within the past 2 years, and that she would have to purchase it and complete the transaction through a title company, complete with a warranty deed.

[KarenFlorida]

DeadManCrawling:

Here's another question for you since you seem to know what you're talking about:

The investment property I own with my mother would sell for about about $150,000 on a bad day I estimate. I have an 80k mortgage on my half. My mother's half is not mortgaged. The attorney told me that the Trustee would first ask my mother if she would like to buy my half (she is in no position), and if she didn't, the Trustee would sell it, (let's just say $150,000), pay off the mortgage (which is all mine), and then give my mother half of the proceeds which would totally screw her. The attorney said the Trustee would have his fangs out for this property because there's clear equity to be cashed in on and they work on commission. I don't see any way around this. I was totally shocked. I thought that since the note was just in my name that that represented my half of the equity which is in essence zero.

I've been to three attorneys, one gave me the above scenario, and one told me that they couldn't sell it, that they could just place a lien on it, and a third seemed totally confused.

I have a homesteaded property, so converting it to a homestead is out. The investment property is currently rented out.

I have a feeling I'm going to have to avoid Chapter 7 but can't afford the payments proposed by the attorneys on a Chapter 13. I would so like to get this property out of my name to protect her interest.

[DeadManCrawling]

Your attorney has it right, unfortunately.

At least you can take comfort that he/she knows what they are doing. There are a couple of other possibilities to consider, which may or may not be particularly attractive.

1. With Florida's generous homestead exemptions, you can consider this: Sell either your home or your mother's home and make the investment property the homestead for one of you. This is legal and would not be regarded as a fraudulent conveyance in Florida. In many other states this is not the case, for readers outside Florida. In order for this to work, legally, you would sell your home (or mom's) and use the proceeds to pay off the mortgage on the investment property, which you (or she) would have to occupy as your home. One VITAL aspect would be to place the money received at the closing directly into a segregated bank account and then use that money to pay off the mortgage on the investment property.

Note that for legal purposes, Florida homestead exemption applies the moment you occupy the premises. The tax exemption you apply for at the beginning of the year has no impact on bankruptcy. It IS your homestead the day you occupy it. Now, if you (or she) occupy the home and have lived in Florida less than 1215 days, you may be limited to a homestead exemption of $125,000. If residency has been longer, it is unlimited.

Any money remaining that does not get put back into the homestead would need to be transferred directly into another exempt asset such as a retirement account. Again, odd as it sounds, this is perfectly legal in Florida, and is not in many other states.

2. Quitclaim deed the property to her and essentially roll the dice, and wait out the 2 years. Note that the trustee can look back longer, so this may not be a particularly attractive option. Your attorney can advise you on whether this is feasible. If you have judgments looming, this may not make sense at all, but it is a possible avenue. My wife and I have not paid our CC bills for nearly three years, and have only one small judgment that is (so far) uncollectible, so it is possible to ride the storm.

If you need case-law references and actual court decisions, please let me know, and I would be happy to link them. Also note, though, that while I have studied this issue very closely in the last three years for our own purposes, I am definitely not an attorney and only an attorney can advise you with this. Yours is a bit complicated, with the investment asset, and you definitely want a good attorney.

Best regards,

-dmc

[cacohelp]

In chapter 7 bk had 341 meeting about 30 days ago. Just got a cash offer on a second home that is listed in the bk as one that will be surrendered at discharge. The offer is for $800,000 chash and we now owe $808,000 so, it would be a short sale. The bank -Chase says that we have no rights as far as this house goes and that we can not sell it. However, the foreclosure process has not even started and I am still required to pay the insurance and water bills on the house. Our attorney has yet to get back to me with an answer but the assistant believes the house is ours to sell until discharge. Anyone know the answer to this one. I do realize no matter what the house will be out of my hair and going through a short sale is a pain. But, I would rather people get the house who are willing to pay a good amount instead of people getting it from the auction for $200,000.

[StartingOver08]

You can sell your own property!

In chapter 7 bk had 341 meeting about 30 days ago. Just got a cash offer on a second home that is listed in the bk as one that will be surrendered at discharge. The offer is for $800,000 chash and we now owe $808,000 so, it would be a short sale. The bank -Chase says that we have no rights as far as this house goes and that we can not sell it. However, the foreclosure process has not even started and I am still required to pay the insurance and water bills on the house. Our attorney has yet to get back to me with an answer but the assistant believes the house is ours to sell until discharge. Anyone know the answer to this one. I do realize no matter what the house will be out of my hair and going through a short sale is a pain. But, I would rather people get the house who are willing to pay a good amount instead of people getting it from the auction for $200,000.

Chase told you that you can not sell your own house?
The Chase rep obviously had no idea what he/she was saying (not unusual). If you still own the house, you have the right to sell it up to the final date of the foreclosure sale on the courthouse steps. You are the owner, not Chase. Chase is the servicer for the mortgage. Sell the house. Chase is not obligated to accept a short sale proposal. However, if you have a buyer and you are only short the $8000 plus closing costs and other transfer costs, Chase would be foolhardy not to accept the short sale proposal.

[cacohelp]

Thank you so much-this is what our attorney has just said as well. Though, he has added that we told the Trustee in the 341 meeting that we had no buyers for the house and were surrendering it with the BK-he has said that if we sell it that it may not look good for our BK-not too sure just why this is but am going to follow his advice! Though-when we fist met with him-knowing we were not keeping the house-he said we could sell it up until the time of discharge.

[StartingOver08]

You can amend your statement of intentions in the BK. Since you will not be walking out with funds, it may not benefit you to sell the house short - you actually might get more benefit to just surrender as you currently have it on your petition. Discuss this with your attorney.

The surrender in a BK is a sure thing: you don't have to worry about deficits or any shortfall.
The short sale in not a sure thing: the bank may not accept or worse yet, want you to sign a note for the shortfall.

Talk with your attorney to determine the best course of action for you.

[cacohelp]

I understand what you are saying and agree with you. We are going to leave it as is. Thank you for your help.