Law help? (Real Estate/Divorce/Bankruptcy)

Factual Questions
1

I apologize in advance for the length and complexity of this, but I swear this is a real situation with only the names changed. I’ll try to keep the sentences short and sweet in an attempt to make it easier to follow. Here goes:
Mike and Anne get married.

Assets Mike brought into the marriage = nothing.

Assets Anne brought into the marriage = A (modest)house(that she inherited, and owned outright)

Later they decide to build a (nicer)house – I’ll call this house #2.

In order to do this, Anne put up some cash for down payment and also House #1 as collateral. For whatever reason, Anne “donates” the house(#2) to Mike. “Donate” is apparently some legal term which means that whenever they settle community property after the inevitable divorce, that the house(#2) will legally be viewed as Mike’s seperate property(not community property). Having said all that, they are both listed on the bank note(even though she would have no ownership claim, just responsibility for the debt).

Mike put up nothing but his signature on the bank note.

Later, they bought a new vehicle(approx $25,000) and managed to use House #1 to secure this(apparently some kind of home equity loan). So they are effectivley paying on the vehicle even though they legally own it outright. And house #1 (which Anne already owns) is now securing two other loans. In essence, she is paying notes on a house that she already owns.

Bear with me, it gets worse…

Approximately 3 years later, they get divorced. I am shocked!

Mike files for bankruptcy. The bankruptcy trustee decides that Mike’s assets are not significant enough to even bother to distribute to creditors(less than $100 in a bank account and misc. personal items). However, the decree does specificy that he relinquishes any claims to House #2.

As of this date, community property has not been settled.

Anne has continued to pay the notes on House #2.

Here’s where I need help…

A prospective buyer has made an offer to buy House #2. Can Anne sell it?

I realize that Mike has no claim to the house, but does Anne(since she “donated” it to Mike)? I have been told that there is some law whereby Anne can go before a judge and ask that she be given some kind of “proprietorship”. Has anyone heard of this?

A title search will be done soon(on House #2) and I don’t see that it will show that she can sell the house.

If this happens, does anyone know how she can get around this? Any specific statute or article numbers that can be used to save this house? Anyhing will be appreciated…

I swear this is a real situation. No I am not Mike or Anne. Anne is a family member… Mike is trash… And since I can’t go back in time and slap Anne around to prevent her from signing things, I thought I would check to see what The Dopers have to say…

2

Both houses are in Louisiana

Anne lives in House #1

House #2 is vacant.

3

First, thanks for listing the state. That’s always important information that usually gets left out of posts like these.

That said, the only help I can give you is to advise your friend to see a Louisiana attorney, who’ll probably want to discuss this with a local title company. This is way too fact-specific to answer here. I’d have to see the documents themselves to have any confidence in my answer.

More importantly, in the U.S. legal world, Louisiana is the odd state out. Even the terms are different, so a non-Louisiana attorney (like me) wouldn’t have a clue. (Every other state has law based upon common law, originally English. La. Law (haw) is based upon a civil code, originally French.)

4

Anne should contact her attorney (or choose a real estate atty) post haste. Quite frankly I’m dumbfounded she hasn’t do so at this point in order to respond to the prospective buyer in a timely fashion. As a real estate agent I can assure you that eager buyers don’t hang around forever. This situation is complex enough that getting SDMB advice on how to proceed should not be the first avenue of information. Get a lawyer and preferably one that specializes in real estate.

5

Anne should consult an attorney.

I realize I’m not adding anything to the discussion, but I want to emphasize the point. We can shoot from the hip on various lofty legal and policy issues here, but answering these fact-specific personal questions would be tantamount to malpractice and it’s very unlikely you’ll find anyone willing to do it.

–Cliffy, Esq.

6

I AM NOT AN ATTORNEY, Anne needs one desperately…

but I work in a related field and live in La. I’ll just try to make a liitle sense of this mess. First off in La. a mortgage on property is only a security device. Anne can indeed donate her 1/2 interest in house #2 but that does not mean she is not responsible for the mortgage payments. Mike now owns house #2 and unless the bank releases Anne she’s on the hook for the mortgage. Anne has no rights to house #2 if the OP is correct. She can pay the mortgage until the cows come home, she has no rights to the house. Now Mikes BK adds a little twist. From the info in the OP I’ll assume Mike went chapter 7. In La. you can claim an exemption of $15,000.00 on your primary residence. House #2 is probably encumbered close to its value thats why the BK trustee didn’t fool with it. Now here is where it gets fun. Unless Mike signed a re-affirmation agreement with the mortgage holder Anne is now on the hook for 100% of the note if it ends up in default. Anne can’t force Mike to sell. The BK trustee can’t make anyone release ownership rights unless the trustee seizes the property for liquidation. If the mortgage is in default the creditor would have to seize the house, the BK trustee can’t make him sign it over. It gets better, La. is a community property state. That also means community debt. Now that Mike is discharged of his unsecured debts via BK if any of those debts where acquired before their divorce, the creditors can now sue Anne for 100% of the debt. A divorce decree no matter what it says can not adversely effect the creditors. The good news is that Mike has no claim on house #1 unless community money was used to improve or maintain it. Then Anne has to pay him back 1/2 of the community money spent on the house. Inherited property (even if inherited when married) and property owned before marriage is seperate by operation of law in La. Anne’s problem is that she used house #1 as collateral for 2 loans. To be honest Anne needs a pretty bad ass attorney to sort this out. After paying her attorney she may have to go BK herself. Good luck.

7

This is the part that I’m confused about. IANABankruptcyL, but why would a bankruptcy judgment require anyone to renounce an ownership interest in real property?

8

Minty, as much as we disagree over states’ rights issues, I am in complete agreement with you here. :slight_smile: I would think the Bankruptcy trustee would seek to liquidate whatever equity existed in House #2 to satisfy the creditors.

This just reemphasizes Anne’s need for a Louisiana attorney. It would be altogether irresponsible for Anne to rely upon non-real estate lawyers from outside of LA, guessing at LA’s civil law and applying it to third-hand information.

9

I.A.A.L. (I ain’t a lawyer), but I do think I have some understanding of PAPER.

In all of the above posts, including the lawyers, I haven’t seen mention of what to us lay folks would seem to be the simplest solution. A quit claim deed is as far as I know, legal in all 50 states. It only works well if both parties are willing participants but it can sure make relatively easy work of some rather complimented claims.

They are incredibly simple pieces of paper, often written on the back of a napkin, turning over all interest and incumberences to a particular piece of property.

I hope everyone will show me the error of my ways but it has consistently worked here in Idaho and I am curious to find out if the same condition works elsewhere.

10

  1. Louisisana is weird.

  2. There doesn’t seem to be opportunity for a quitclaim deed here. Mike seems to be out of the picture; it’s unclear if he’d be willing to sign.

  3. Bankruptcy is weird. Such a deed would be a significant transfer of assets to Anne, assets that might instead be divided equally amongst the entire creditor pool. If so, and I have nowhere near the facts or the knowledge of bankruptcy law to speculate, then Mike may not be authorized to execute such a document under the bankruptcy proceedings or settlement.

  4. Or do you mean Anne should sign a quitclaim deed as the deed of sale? The buyer almost certainly would reject that – it means he would get only Anne’s interest in the property. But the whole point is that Devin doesn’t know if Mike, Mike’s creditors, or the bankruptcy trustee has any interest. If they do, the quitclaim deed signed by Anne would be ineffective as against them. Since the buyer is so unprotected from the multitude of possible stakeholders, he’d be a fool to accept such limited rights from Anne unless 1) she was willing to sell for a very heavily discounted price or 2) she was able to prove to the buyer’s satisfaction that she was the sole owner. (And if she could do that, then why use a quitclaim deed when she could sign a standard warranty deed?)

  5. Anne needs a lawyer.

–Cliffy, Esq.