Parents gifted us property then filed Ch7 - we have loan on property

[MyDuckets]

Perhaps a different angle here for you.

In 2008 my parents gifted property to my brother and I as joint tenants (in Oklahoma).

In 2009 my wife and I took out a loan against the property (my brother and his wife did as well due to the nature of joint tenancy but my wife and I are the ones on the note - gave my brother and his wife appx 20% of loan amount - they pay us each month for their share). We did this to roll up some debt, payoff credit cards, a car, pay for wedding all at a lower interest rate.

In 2010 (after 2 years), my parents filed Chapter 7. Originally trustee left the property out but has since amended the docs to potentially pull the property into the estate.

My primary question is what liability might we be subject to? This of course assumes that the trustee can legally pull the property into the estate.

If the trustee pulls the property in and sales it, would he have to payoff the first mortgage holder?

Thanks!

[newbie2]

Perhaps a different angle here for you.

In 2008 my parents gifted property to my brother and I as joint tenants (in Oklahoma).

In 2009 my wife and I took out a loan against the property (my brother and his wife did as well due to the nature of joint tenancy but my wife and I are the ones on the note - gave my brother and his wife appx 20% of loan amount - they pay us each month for their share). We did this to roll up some debt, payoff credit cards, a car, pay for wedding all at a lower interest rate.

In 2010 (after 2 years), my parents filed Chapter 7. Originally trustee left the property out but has since amended the docs to potentially pull the property into the estate.

My primary question is what liability might we be subject to? This of course assumes that the trustee can legally pull the property into the estate.

If the trustee pulls the property in and sales it, would he have to payoff the first mortgage holder?

Thanks!

Yes, if the property becomes part of your parents BK estate and sold, then the lien will be paid off first before any money is distributed.

[tobee43]

i agree with newbie...however, if there is no equity to pay off everyone after the first lien holder has been paid...it would not be worth it for the trustee to go through selling the property. additionally, your brother would also be entitled to his share PRIOR to any distribution....if that's half...ownership, i'm certain it does not leave much for the creditors.

another suggestion is this....if you have substantial proofs...wherein you can prove to the courts that you and your brother have always been listed on the deed, you can quit claim the deed to him, if he would be able to assume the existing mortgage....complicated, but perfectly legal, as you have both always owned the property together and you are not JUST adding his name to the deed. of course, the downside is, he would somehow have to attempt to refinance or see if the bank would allow him to assume the mortgage in his name. sounds crazy......but i know two people that did similar situations.

as we are all aware, most property values have dropped so dramatically, that they are worth less than half if not worse in many parts of the country. personally, i would find our the actual value of the property...as it simply could be a non-issue.

[AngelinaCatHub]

The Trustee had his chance. I don't see how he would pull off reopening their case unless under fraud. Two years is not planning a "constructive" bk. Also, if he allowed the land to go before, he wrote it off once, if he can change his mind and reopen, the trouble of liquidating that land in this day and time and the fact that two years of your ownership could be disputed and argued in the Court that you own the property with your brother and is grossly unfair to two innocent individual. I can see so many problems for the Trustee that I am sure he does too. I'll wager he will not bother the land. Think about it. Just too much trouble. 'Hub

[despritfreya]

In 2008 my parents gifted property to my brother and I as joint tenants. . . In 2009 my wife and I took out a loan against the property (. . . gave my brother and his wife appx 20% of loan amount - they pay us each month for their share). We did this to roll up some debt, payoff credit cards, a car, pay for wedding all at a lower interest rate. In 2010 (after 2 years), my parents filed Chapter 7. Originally trustee left the property out but has since amended the docs to potentially pull the property into the estate. My primary question is what liability might we be subject to? If the trustee pulls the property in and sales it, would he have to payoff the first mortgage holder?

1. Since the initial transfer was more than 2 years before the bk filing it was not disclosed on your Parents’s schedules.

2. Somehow the Trustee found out about the transfer. If your State’s “fraudulent conveyance statute” has a look back period greater than 2 years, the Trustee is going to use it to recover the property. I suspect this is what happened based upon your indication that at first the transfer was not an issue.

3. If the property was free and clear of liens at the time of the transfer, and assuming the transfer meets your State’s definition of a “fraudulent conveyance” under the fraudulent conveyance statute, the fact that you took out a loan after you received the property is irrelevant. You and your brother (and even your parents) are beholding to the bk estate for the full value of the transfer. If the sale of the property in today’s market will not produce enough to reimburse the estate for the full value of the transfer the Trustee will have the right to obtain a judgment against all for that value.

4. If there was a loan against the property at the time of the transfer and you paid off that loan, then the amount recoverable by the Trustee is reduced by that amount.

No matter how you look at this you, your brother and, to a lesser extent, your parents have a problem. I recommend you consult with a bk attny before proceeding further.

Des.

[tobee43]

1. Since the initial transfer was more than 2 years before the bk filing it was not disclosed on your Parents’s schedules.

2. Somehow the Trustee found out about the transfer. If your State’s “fraudulent conveyance statute” has a look back period greater than 2 years, the Trustee is going to use it to recover the property. I suspect this is what happened based upon your indication that at first the transfer was not an issue.

3. If the property was free and clear of liens at the time of the transfer, and assuming the transfer meets your State’s definition of a “fraudulent conveyance” under the fraudulent conveyance statute, the fact that you took out a loan after you received the property is irrelevant. You and your brother (and even your parents) are beholding to the bk estate for the full value of the transfer. If the sale of the property in today’s market will not produce enough to reimburse the estate for the full value of the transfer the Trustee will have the right to obtain a judgment against all for that value.

4. If there was a loan against the property at the time of the transfer and you paid off that loan, then the amount recoverable by the Trustee is reduced by that amount.

No matter how you look at this you, your brother and, to a lesser extent, your parents have a problem. I recommend you consult with a bk attny before proceeding further.

Des.

but des...if the property has no equity what would it matter. i understand there may be an issue in reference to the conveyance...however, the OP was not clear as to the actual value.

i know persons that did "legal" or safe conveyance by issuing 10k annually to each family member annually until the amount was gifted out and then the deed exchanged?

secondly, as pointed out...scary thought if you are saying it simply was not noticed during the parents bankruptcy...if they examine that situation that is not a happy thought.

however, once again, my question would then be, if the brother owns half, and the OP's share holds no equity, understanding the trustee can sell the property...but what would be the point if there was no equity, because the trustee has no right to the brothers share??? question.....

[despritfreya]

tb43,

This issue is not the value today, encumbered or not. The issue is the value (equity) at the time of the transfer and, assuming Oklahoma's fraudulent conveyance statute is similar to the one in my state, was there was an equal exchange for value and/or did the transfer caused the parents to become insolvent or was done when they were insolvent. It all depends upon the Statute since the transfer was outside of the 2 year rule.

Look at it this way: I gift you property worth $100K with no lien. You then encumber the property by $80K, using those funds to pay your bills or take some trip or purchase some "toy", thus leaving $20K equity. I then file bk. Why would the Trustee only be entitled to the $20K current equity? Did you not get the full benefit of the $100K transfer (and presumably I got no benefit other than the satisfaction that I did a good thing by gifting the asset)? I believe that will be the issue here. Now, the reality is that it is highly unlikely any of the parties can reimburse the estate the full value and, most likely, if OP and the brother hire a good attny, they will settle the dispute (assuming there is one).

Also, the transfer was to both siblings so both could be caught in the middle of the issue. The brother, however, may have less of a problem if he can show he did not financially benefit from the transfer or that his benefit was much less. This creates a whole other issue as it relates to a conflict between siblings. As a result, each sibling should consult with different attnys.

Des.

[tobee43]

tb43,

This issue is not the value today, encumbered or not. The issue is the value (equity) at the time of the transfer and, assuming Oklahoma's fraudulent conveyance statute is similar to the one in my state, was there was an equal exchange for value and/or did the transfer caused the parents to become insolvent or was done when they were insolvent. It all depends upon the Statute since the transfer was outside of the 2 year rule.

Look at it this way: I gift you property worth $100K with no lien. You then encumber the property by $80K, using those funds to pay your bills or take some trip or purchase some "toy", thus leaving $20K equity. I then file bk. Why would the Trustee only be entitled to the $20K current equity? Did you not get the full benefit of the $100K transfer (and presumably I got no benefit other than the satisfaction that I did a good thing by gifting the asset)? I believe that will be the issue here. Now, the reality is that it is highly unlikely any of the parties can reimburse the estate the full value and, most likely, if OP and the brother hire a good attny, they will settle the dispute (assuming there is one).

Also, the transfer was to both siblings so both could be caught in the middle of the issue. The brother, however, may have less of a problem if he can show he did not financially benefit from the transfer or that his benefit was much less. This creates a whole other issue as it relates to a conflict between siblings. As a result, each sibling should consult with different attnys.

Des.

thank you des....perfectly clear now...and talk about a glitch, this certainly sounds as though the OP MUST get a good atty, as well as ....hate to bring this point up, but what about capital gains if the property was just turned over in the respect of your example. (one would think that aspect may be applicable tax wise).

i would most certainly follow YOUR advise and get separate atty's.

[despritfreya]

hate to bring this point up, but what about capital gains if the property was just turned over in the respect of your example.

Interesting point but not a clue. Can't even do my own taxes.

Des.

[tobee43]

Interesting point but not a clue. Can't even do my own taxes.

Des.

lol!!! tax and probate...my favorite things...LOL!!! hated bk tho!! (no offense please) because now i know now i should have paid better attention in class! i could probably get a job since they are the only atty's probably still hiring paralegals today!

[free2breathe]

Stepping into totally unknown waters here, but found this site and thought maybe someone like Des can decipher the legalese....it's all Greek to me!

http://www.oscn.net/applications/oscn/DeliverDocument.asp?CiteID=71246

[despritfreya]

Stepping into totally unknown waters here, but found this site and thought maybe someone like Des can decipher the legalese....it's all Greek to me! http://www.oscn.net/applications/osc...p?CiteID=71246

As it relates to the link to the Oklahoma statute:

This is the Statute of Limitations for pursuing a fraudulent conveyance action in Oklahoma. It follows the majority of states which use the Uniform Fraudulent Transfer Act.

1. If the transfer was done with intent to hinder, delay or defraud, [§116(A)(1)] the SOL is 4 years from the date of the transfer. However, there is an additional 1 year from discovery of the transfer if the transfer could not reasonably have been detected within that 4 years.

2. If the transfer was done and the debtor did not get equivalent value in return (OP’s scenario), the SOL is 4 years under §116(A)(2) and §117(A). In addition to the unequal exchange for value, the transfer had to be a substantial portion of the debtor’s assets in relation to the debtors liabilities thus making him practically insolvent. This is where OP, the brother and the parents may have a defense. Did the gift of the property make the parents almost insolvent at the time of the transfer? If not, then the transfer should be outside the scope of the Uniform Fraudulent Transfer Act as adopted by Oklahoma.

3. If the transfer was done to pay an insider for a loan, was done when the debtor was insolvent, and the insider knew the debtor was insolvent as stated in §117(B), then the SOL is only 1 year as it relates to recovery of the transfer - similar to the bk preference provision.

Sorry if this explanation was confusing. Sometimes I can’t write as smoothly as I would like to.

Des.

[AngelinaCatHub]

Sorry if this explanation was confusing. Sometimes I can’t write as smoothly as I would like to.

Des.

Not a problem Des. May I pour you another? LOL.

The value of the property is probably the key in this scenario. It seems grossly unfair to the children as I doubt the parents had any idea at that time to bk. I know, the letter of law. Just does not seem right if done in good faith.

I still maintain, that if this goes to action, I would be surprised. Again, I suppose it would depend on what the property is/was worth, as well as the cost to recover. 'Hub

[free2breathe]

I knew you could decipher it Des ;)

It was the 4 years that caught my eye. That would be an explanation as to why the trustee was looking back that far, correct? I think I'm crazy, but I find all the ins and outs of bankruptcy intriguing. I have learned more in the last few weeks than I ever thought possible.

And Hub, I agree, it does seem so unfair to the children. Are there people who really plan a bk that far in advance? I suppose it could happen, but I certainly wouldn't think it was the norm.

Hoping for the best for you and your brother, MyDuckets!

[wanuvas]

Yes. There are those people who plan that far in advance for contingencies. Without going into detail I spent over 12 months researching options including bankruptcy, 12 months planning a bankruptcy & then 7 months from filing to confirmation. Very complicated, messy, ugly case in my particular circumstances. It had to be done "just so" to have success. And now I still have to complete it.

Sorry to hear about your circumstances though. Sounds like a tough deal. I'm no expert but you might want to ask an attorney are there grounds to argue against fraudulent conveyance such as estate planning on the parents behalf. Also if you find a good attorney they can usually negotiate with the trustee. You mentioned you were in oklahoma. If you are in the Western District I would recommend Gary Hammond. He handled my case and is doing a superb job. I love his communication, follow-up & discussion of the issues.