CAN BK TRUSTEE SELL DEBTOR’S FATHER’S HOUSE IF DEBTOR’S NAME IS ON TITLE?

Sometimes parents put their children’s names on title to their residence even if the parents intend to keep the residence as their own as they continue to pay all expenses connected to their residence. The usual reason is for estate planning purposes of the parents. A major problem arises when the residence has a lot of equity and the children file for bankruptcy relief. The trustee will want to sell the property to realize the non exempt portion of the equity for the benefit of creditors. The parents will then argue that the residence belongs to them, not to their children. This becomes a major legal dispute. Parents will argue that their children own bare legal title while they, the parents own beneficial title, and that the house really belongs to the parents. Who is correct?

In Re Munro, the defendant was the father of the debtor wife. He acquired his home in 1985. Since then he was solely responsible for the payment of the mortgage on the property, as well as taxes, insurance, and maintenance costs. In other words, father paid for everything connected to the house. In 1993, as an estate planning device, the defendant added his daughter, the debtor’s name to the deed. The parties intended that the debtor would take only bare legal title to the property. They further agreed that the debtor would hold her legal interest in the property exclusively for the father’s benefit. So, the house is actually a property held in trust by the debtor for her father. Note that in bankruptcy law, a property held in trust by the debtor for another does not become property of the bankruptcy estate.

Debtor married her husband in 2004. In order to disclaim any interest in the property that he might have acquired by operation of law due to the marriage, the debtor husband quit claimed his interest in the property that he might have acquired by operation of law due to the marriage to the father and his wife, the daughter. After the couple filed for Chapter 7 relief in October 2010, the trustee filed an adversary proceeding against defendant father seeking authority to sell the property.

At the summary judgment motion hearing, the court found that the debtor daughter did not have an equitable interest in the property even if her name was on title to the property together with her father’s name. “Here, the court finds, by clear and convincing evidence, that the imposition of a resulting trust on the defendant’s (father) home for the benefit of the defendant is appropriate. Based upon the uncontested summary judgment evidence, the court concludes that an agreement existed between the defendant and his daughter, Stephanie, as to the home. In particular, when the defendant added Stephanie to the General Warranty Deed in 1993, the defendant and Stephanie understood that the defendant was to retain all of the beneficial interest in his home. Moreover, the conduct of the parties further supports the proposition that the defendant and Stephanie both intended for the defendant alone to hold beneficial title to his home. The defendant lives alone in the home, and only the defendant has borne the costs and risks of ownership by making the mortgage payments and paying property taxes, insurance, and other expenses,” the court said. “Therefore, the evidence supports the court’s conclusion that the defendant intended to hold equitable title and intended Stephanie to acquire only legal title to the home. There are no uncontested facts that would call into question the parties’ agreement. The debtors even described their interest in the defendant’s home in their bankruptcy schedules as a “legal interest”. The court concludes that the parties’ agreement and presumed intentions support the imposition of a resulting trust on the defendant’s home in favor of the defendant.”

Defendant in this case was fortunate because he had convincing uncontroverted evidence that daughter was holding the property in trust for him. If evidence is insufficient, the result may be different.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years.  He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California.  He speaks Mandarin and Fujien and looks forward to discussing your case with you personally.  Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.