Question #1
Question:
I am a real estate agent. I have a client who owns a house and is not
working at this time. She has a mortgage of about $110,000. Her boyfriend has been making
the monthly payments since she bought the house. Now she does not want the house anymore.
She told her boyfriend that she will transfer the house to him if he gives her $25,000.
Her boyfriend has very bad credit so he does not qualify to buy the house. Recently she
had surgery and the county paid all her expenses at the hospital. If she gives a grant
deed to her boyfriend and he records it, will the bank call the loan? Will the county
record a lien on the house due to the fact that the hospital paid for the surgery?
Answer:
While it is always hard to guess just what someone else might do in a
particular case, this is one where I would urge caution on the part of your client.
Typically, most promissory notes and deeds of trust prepared by banks
and other institutional lenders contain a “due on sale” clause which allows them
to call the loan due if the borrower transfers the property, or any interest in the
property, to someone else without the lender’s consent. If that clause is in your
client’s loan documents, it would give the bank the legal right to call the loan, but
whether it would actually do so would be a business decision on their part. However, since
the boyfriend is not terribly credit worthy, this might make them more ready to call the
loan than if he had a stronger financial position.
I’m not familiar with the law involving payments of medical
bills by the county, but if it allows them to put a lien on a patient’s property,
they might try and set the transfer of the house aside as being a conveyance in fraud of
creditors. A “fraudulent conveyance” is one by an owner of property for less
than adequate consideration, which prevents a creditor from reaching the property in order
to satisfy its claims. The question, then, is whether $25,000 is adequate consideration
for the house. If there is only $25,000 in equity, and the boyfriend also agrees to assume
liability under the loan, then it might suffice. Unfortunately, this would be a question
of fact to be determined by the court if the transfer was ever attacked.
Please be advised that any transfer of real property can involve
significant tax and legal consequences, particularly where creditors are involved.
Accordingly, your client should not transfer any interest in her property without first
speaking with her own attorney and tax advisor, who can give her specific advice tailored
to her particular circumstances.
Question
#2
Question:
Could I please ask you a question in regard to a Lis Pendens. The Lis
Pendens was filed on February 6th against a Seller or a property by parties
which had a lawsuit against him.
The Seller sold his property to another buyer on February 8th,
without informing the new buyer of the lawsuit. Apparently the title company did not catch
the Lis Pendens.
My question is this: is the sale still legal? I believe it is, but
when then happens to the Lis Pendens? My understanding was that Lis Pendens is against a
person as opposed to being against any particular property. Is that correct?
Answer:
What a Lis Pendens does is to impart constructive notice to the world
that the plaintiff has filed a lawsuit concerning title to, or the right of possession of,
a particular piece of real property. A sale of the property is legal; it simply means that
whoever buys it does so subject to the outcome of the plaintiff’s lawsuit. In other
words, if the plaintiff wins, it could negatively impact the buyer’s title, if not
divest him of it altogether. For this reason, title companies generally will not insure a
sale where the property is subject to a Lis Pendens.
In this case, the title company could have simply missed the Lis
Pendens during the searching process, or they could have made an underwriting decision
that the Lis Pendens was in some way invalid. Given the relative proximity between the
recordation date of the Lis Pendens and the date of the sale, however, I would suspect
that the Lis Pendens simply had not yet been posted to the title company’s plant
information.
One
thing to note, though, is that even though the Lis Pendens was recorded prior to the sale,
it would not be as effective against the new owner unless it was properly indexed by
the county recorder’s office before the buyer’s deed recorded. Case law holds
that it is the date of indexing, not the recordation date, that determines when a
document imparts constructive notice to the world. Generally there is a two (2) to three
(3) day lag time in most recorder’s offices between the recordation date stamped on
the document and the date it is actually indexed, it is possible that the Lis Pendens had
not yet been indexed when the buyer’s deed recorded.
If that’s the case, then the buyer would take title free and clear of
the Lis Pendens and the underlying lawsuit.
