Can Debtor Protect Nonexempt Real Property By Making The Property His Child's Homestead?
Man owns several rental properties and a primary residence. He is concerned some of his rental properties will be foreclosed as the falling real estate market has made it impossible to sell the homes for enough money to pay the mortgage and rental income does not cover monthly expenses. One of the rental home is owned free and clear. The man asked whether he can protect the free and clear home by deeding it to his adult child and having the child move into the home as the child's primary residence. The man understands the transfer would be a fraudulent conveyance if one of his homes went into foreclosure and resulted in a deficiency judgment in the near future. His question is whether a creditor could take the transferred house occupied by the child and whether this is a viable asset protection plan.
The answer is no and no. I do not think the man's creditors can take the house once owned and occupied by the child. The house would be the child's homestead, and even if the child acquired the house as a result of a fraudulent transfer the creditor cannot set aside or reverse the conveyance of homestead property. I do not think this is an effective asset protection plan because the creditor would get a money judgment against the child for the value of the transferred property. Even if the child can protect the house he received, the child would still have a large money judgement against him. A fraudulent conveyance suit results in a money judgment against the transferee. The creditor could collect the judgment by levying upon nonexempt assets owned by the child. Homestead protection shields residences from fraudulent conveyance suits, but it does not protect against fraudulent conveyance judgments.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida.
I own a condo in South Florida and have had this condo on the market for sale since November 2006 and can't seem to sell it. I have tenants living in my unit and it is not a homestead property. In fact, it is an investment property. Recently, my realtor has advised me to go ahead and ask my lender (Bank) to do a short sale. They sent me the documents and on the forms it requires that I list all my assets. Well, my question is this my wife owns a home which is homesteaded. She's on the mortgage I'm just simply on the deed. We also have a CD that we have both our names on which we have a $100,000 on. We also have a small business checking account that is under an LLC that we formed for real estate purposes. What I wanted to know, is do I need to worry about that money if I ever decided to forclose on my condo because I am tired of loosing money and can I transfer my money to my LLC account. Basicaly, what are my options to getting rid of my condo without worrying about the Bank trying to tap into my home and cash.