I have a situation where someone deeded a home to me via a quit claim deed.I made some repairs and have been trying to work with the lender to obtain new payment terms or a modification. Since I'm not the original owner or on the original loan this has been very difficult to do. The original owner has decided to file chapter 7 bankruptcy. His attorney is telling him he can't file bankruptcy since I am the one on title to the house.I don't agree with this legal advice. I think he should be able to file bankruptcy and list the loan as a secured debt as it is secured by real property. However, on Schedule A we have a question as he doesn't own the house anymore. Should he list the house on Schedule A (Real Property) or not? Do I need to deed the house back to him before he files BK? I want to keep the house short term and don't really want to give up the deed.
State/Country relating to question: Utah
Should he list the house on Schedule A (Real Property) or not?
Do I need to deed the house back to him before he files BK?
Hi, I'd like to help answer your bankruptcy questions today.
Should he list the house on Schedule A (Real Property) or not? Yes, the instructions to Schedule A include a sentence saying, "If an entity claims to have a lien or hold a secured interest in any property, state the amount of the secured claim."
Do I need to deed the house back to him before he files BK? No, your friend's personal liability for the mortgage debt will be wiped out upon discharge either way, so there's no need to deed the house back to him prior to filing.
Your friend CAN file bankruptcy. What's essentiallly going to happen is pretty similar to what would happen if he still lived in the property, except that you (as well as your friend) are now a necessary party to the subsequent foreclosure action.
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On Schedule A it asks: NATURE OF DEBTOR’SINTEREST IN PROPERTYShould he put "none"? Leave it blank? Put "former owner"?
Something like "Mortgage Lien" would probably suffice, with a note adding that he has no ownership interest in the property.
To be safe, the claim should probably be listed in Schedule D as well (even though it's arguably an unsecured claim).
Does he even have to say he no longer owns the property? He just wants to put mortgage lien. If the trustee grills him on it he can say he's moved out of the home and is living in an apartment.
The best practice would probably be to put down on the schedules that he no longer owns the property. If he doesn't indicate that on his schedules, and there's any potential equity in the property, the Trustee would probably try to sell the property. There are a lot of legitimate reasons to quitclaim deed property like this (i.e. divorce, estate planning), so it doesn't look as bad as you might think. Not disclosing this and having it come up later would look far worse.
I forgot to ask: How long ago was this property quitclaimed to you? Also, when was the quitclaim deed recorded?
Both were a year ago.
If possible, it would be better for the both of you to make sure that it's been more than one year between the date the quitclaim deed was recorded and the date your friend ultimately files for bankruptcy. Otherwise the Trustee could potentially avoid the quitclaim deed to you as a preferential transfer pursuant to Section 547(b). (You may not truly be an "insider," as most courts construe the term very narrowly, but it's not worth risking litigation to find out.)
there isn't any equity--$100k upside down
The Trustee could still try to avoid the quitclaim deed in an attempt to strongarm YOU into paying some kind of settlement into the bankruptcy estate in order to remain on the deed. I don't know that most Trustees would be that aggressive, but you're better off safe than sorry if you only have to wait a short period of time for the full year to run.
Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases
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