A real estate attorney alerted me to pitfalls in changing legal title to real property in the course of asset protection planning. To better protect real property from future creditors, many clients have told me that they have conveyed real estate that they purchased in their individual names to limited liability companies, corporations, or partnerships. Most often, people use quit claim deeds to make the conveyance. If a creditor records a certified copy of judgment against an individual that judgment becomes a lien on all real property titled in the debtor’s individual name.
The conveyance to another legal entity protects against the immediate lien on the real property, subject to any creditor argument of fraudulent conveyance. In general, such conveyance to entities from individual names is a good asset protection strategy. Yet, this attorney told me there are risks.
When the individual first purchases real estate in his own name he typically buys a title insurance policy insuring the individual against defects in legal ownership. The individual purchaser is the insured party. When individual owners convey real property to an LLC or corporation they rarely extend the title insurance to the new entity owner.
If they encounter a title problem when they sell the property the title insurance company can deny coverage to the entity owner because they are not named insured parties. The transfer for asset protection could forfeit valuable title insurance. A possible solution is a conveyance by warranty deed so that the individual guarantees good title to the entity, and in the event of a subsequent title problem, the individual grantor may have insurance coverage for his warranty of title. The potential issue illustrates the complexity of asset protection planning.
Thanks for the info. What about other assets? If I change the title of my car to another party to protect it from a Deficiency Judgment, can the lender try to take the vehicle in court?
Real Estate Florida
Another potential pitfall, at least in those cases where the individual borrowed money to purchase the property, is that the conveyance from the individual to the entity is likely a breach of the mortgage. Individuals planning to use these strategies are better off taking title in the name of the entity from the beginning, but they should certainly contact their lender before transferring the property to the entity.
I need help. My ex husband filed BR a week before the judge signed off on the final diss. I won our homestead in the divorce but now it was “fraudulently transferred”. He lived in one of our rentals and it is protected for his homestead but since he didn’t intend to live in my home I am at risk of losing trial because I do not meet all six entirities. His chapter 7 estate/trustee is coming after me for the equity in my home. There is a judgment against me for this as I didn’t fight it because I didn’t have money. The chapter 7 trustee’s attorney told my attorney to let them file the judgment, have me file BR and they will be just like all the unsecured creditors in my BR. Then the day my ch 13 was supposed to be dismissed they came after the equity in my home. The judge is giving me time to overturn the judgment but I will have to win the trial once i do this. From everything I read it sounds like I am gambling. Furthermore, my ex completed major BR fraud lying about his income and the US trustee held a meeting with his ch 7 trustee to investigate. Apparently that is criminal only and it doesn’t help me- they want money and see money in my home. they said their attorney fees are $75000! At this point that is half the equity in my home and my ex’s creditors aren’t going to see a dime as only the attorney’s get their money. My kids and I need a home and the trustees harassment for personal is affecting my health, my job, my time with my kids. They subpeona’d family and friends at my kids birthday party. I know the emotional part doesn’t matter so I try not to go there. The laws are not set up to protect the innocent spouse in a divorce who doesn’t file br and struggles to make ends meet. Please help! 813-480-5449
my husband has been running a “hobby” which has netted him enough money to buy 3 new tundras in 7 years in cash, put up a 60,000 barn and add a 26,000 family room,plus remodel parts of the house…he states his mother gave hime money, l,ooo a month all the time, however she only lived on 5-7,000 a month retirement and lost everything in adnfrew and filed bankruptch herself. I have invoices for charges of material for business totalling 194,000 and thats not all of them, He is “disabled” and income is 1400 a month..mom now dead, I am disbled, owned the house and 5 acres before we married and he admitted bringing nothing into the marriage..The judge wants my law. to come up with a case so she can base her determination of the amount of alimoney he can afford to pay, based on legally and illlegal funds..due tues…..we’e married 19 yrs..no kids.
Can an Irrevocable Living Trust protect other real estate assets that has clean title, (owned by a houseowner who possibly has to walk away from a HELOC loan) be broken by the lending bank to pay for the outstanding HELOC loan balance?
I am a realtor who has not made any sale since 2006 and since we are in our 70′s, my husband and I are having a hard time with finances since we live in a house in a gated community that was initially planned to be a spec home, which we ended up living in as we couldn’t sell it for what we paid for, or a reasonable fraction of it, after it was finished. We also own a lot here where we planned to build a small retirement home out of the projected profit from this house we now live in, projections that didn’t materialize as anticipated, and which we are paying about $13K for taxes and HOA alone, amount of which we draw from our HELOC yearly thus increasing our debt every year since we are only paying interest which is what we can afford to do, and has done timely without fail.
We have no savings as we used it all up in buying the other properties and building this house. Being dependent on just commission, I didn’t want the responsibility of monthly instalment, did not buy unless I can afford to pay for it, so we really bought at peak prices since that’s when I made the money. I did not expect the market to dry up so fast, or so long, thus the problem, having used $388K of the equity in our home to pay debts, taxes, and the expense of supplementary medical insurance, and daily living.
Since the other properties are free from encumbrances, I possibly can just do a quit claim to our 3 sons, of legal age and are not married, but I’m not sure that they don’t have credit liabilities and student loans and really wants to leave them what I have worked hard for, for their use when they really need it. Please let me know what I can, and should, do.
Thank you…