Title Problems

Your home or other property may be held in the name of another party, usually a friend or a relative. This usually occurs because this other person has better credit or in order to obtain a tax benefit. When the person who holds “Bare Legal Title” to your property files bankruptcy you may receive an Adversary Proceeding from the Trustee to turn over the property so that it can be sold for the benefit of this other person's creditors. This, of course, is a nightmare.

The good news is that if you can show that you paid the down payment and the mortgage payments and you and this other person always understood that the you were the true owner i.e. “The equitable owner” and the only had his name on the property for a reason apart from ownership i.e the holder of “Bare Legal Title” the Court will dismiss the Trustee's Adversary Proceeding. This is true even if your reason for keeping title in another person's name was to avoid your own creditors or to reduce your tax bill or for some other undeserved benefit.

A similar problem arises when you legitimately own a property jointly with another person and that other person files bankruptcy. The Trustee will want to sell his half of the property to pay something to his creditors. Since selling half an interest in property will not produce a sale at half the fair market value, the Trustee will ask the Court for permission to sell the entire property, including your half, even though you are not in bankruptcy and to then pay you your half. You can defeat this type of lawsuit by showing that the hardship to you outweighs the benefit to the Debtor's creditors. One of the issues is how much money will be available to the Debtor's creditors after the mortgages, costs of sale, fees for the Trustee and his attorney, and Debtor's exemptions are paid. If this benefit to the Debtor's creditors is relatively small, ie a few cents on the dollar, compared to the hardship of you losing your home this type of Adversary Proceeding will be dismissed.