Agent

Protect your assets during ‘deed in lieu’

Homeowners often still liable for injuries, property damage until bank takes title

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DEAR BENNY: My husband and I are at the end of a "deed in lieu of foreclosure." The bank said it signed a deed transfer and we are not responsible if any damage is done to the house. (It changed the locks and we have no access.) But when I talked to the bank’s attorneys processing the paperwork, they said since title is still in my name, if anything happens I am responsible. Whom should I believe? I’m very worried that if something happens to the house, which we no longer have access to, I will be responsible. –Paula

DEAR PAULA: There are at least two kinds of title: legal and equitable. Legal is when the deed is in your name. But equitable title gives someone such as your bank the right to use and maintain the property even if the title is not in the bank’s name.

In your situation, if the bank changed the locks and you do not have access, I believe that the bank will be fully responsible should there by any problems.

However, you still are on title. You should do two things: First, have your attorney press the bank to record the deed. Second, I would make sure that you have adequate homeowners insurance just in case anything happens. Because you are still on title, and should something happen, you will be sued along with the bank. It makes sense to protect yourself with insurance until the deed is, in fact, recorded.

By the way, for those who may not know, in a deed in lieu of foreclosure, instead of foreclosing on the property, the homeowner reaches an agreement with the bank that the deed will be given to the bank "in lieu of foreclosure." This is a process often used, but it still impacts on the homeowner’s credit rating.

DEAR BENNY: I live in a home that my mother and I financed jointly. I have been on the note and deed for about 10 years and have always made the payments and lived there. Our verbal agreement was that after two or three years she would give me the house because she wanted to go into a facility with people her age.

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She often forgets that the house is in both of our names. The last two years she was living in the home we agreed to sell it a number of times but she would refuse to sign the final documents. I also tried to buy her out with the same result. My niece has power of attorney at present that allows for her to sign in place of my mother. My attorney approved the power of attorney as sufficient.

About four years ago my mother’s health deteriorated to the point where I could no longer care for her and she relocated to an assisted living home. Her monthly income is not enough to cover the cost of her care and she is now on a state program. This program allows her to keep $100 per month, and then the state makes up the difference between what she has left and the cost of her care. To qualify for the program, she cannot have more than $2,000.

I am confused as to what the status of the home should be. Should I sell or refinance?

My niece who lives closer to her signed my mother up for the program when my mother’s finances fell below the $2,000 limit. My niece was told that if I had been on title for three-plus years, the state considered the house mine. The next time my niece met with the agency she was told that was not true, that my mother would have to withdraw from the program or the state might just take her share if the house was sold or I would need to buy her out at some point. If the money went to her, she would then remain off the program until she had less than $2,000 left and then have to reapply.

I’m afraid with the current economy my mother might have a difficult time getting back on the program. Her share of the equity would last only about eight months.

I spoke with my attorney and he indicated that it was a kind of a grey area, but in his opinion since the state didn’t place a lien on the house, it has no interest in it. My niece, however, is afraid that if she doesn’t take my mother off the program or give the money to the state, she will be in trouble since she signed the paperwork and the house is listed.

I want to do a cash-out refinance and take my mother’s name off the note and deed. In your opinion, do I need to buy her out in which case 50 percent of the equity will go to the state one way or the other, or is the money mine? Since she can have up to $2,000, my thought was to keep about $1,500 in her bank account to take care of her extra expenses, which I now pay, and it would also give her extra money to do "special" things with. –Robert

DEAR ROBERT: This is primarily a Medicaid question, and, although a federal program, it is administered by the state and subject to state laws, which vary. I am not an expert, but generally, to qualify for aid the annuitant’s (your mother’s) assets can be no more than a certain amount.

Here it appears that the amount is $2,000. However, generally the annuitant’s home is not counted as an asset until it is sold (or refinanced if cash comes back to her). Then, she would have cash in excess of the limit and would no longer qualify until her assets were spent down below the limit.

Also, even though the house is not counted as an asset, a lien attaches to the property and the government is repaid for benefits it paid up to the value of the annuitant’s property after she dies. I do not know if the lien attaches automatically or requires a filing, but I believe the latter is the case.

So if you sell or refinance, your mother’s share of the proceeds will disqualify her from current benefits. She will also have to repay amounts that were spent on her previously (but I am not sure about the timing of the repayment if the property is sold before she dies). Again, state laws can vary.

It appears that you may have a greater equity interest in the property than your mother. Again, Arizona law will determine the amount of that interest. In Washington, D.C., and perhaps in some states, you could file for a declaratory judgment or a partition to determine what the value of your interest is. Then that judgment could be provided to the Medicaid office to limit the amount of the house proceeds that are attributable to your mother. You could possibly show evidence to Medicaid of having made all the payments and they may take that into account without a court order.

However, this is a highly complex legal issue. If your current attorney does not specialize in elder law, I suggest you consult with another lawyer. You clearly don’t want to take any action until you are completely satisfied that your action will not backfire against you and your mother.

DEAR BENNY: In a recent Q-and-A about putting one’s estate into a trust to avoid probate, I noticed that while your answer to the question was generally correct, there was one error in the last part of the third paragraph of your reply.

In this paragraph you indicated that "you have to have a deed prepared and recorded from your name to the name of the trustee of the trust. A trust cannot hold property; only the trustee of a trust can do this." This is incorrect. The deed will go from the name of the owner to the name of the trust, i.e., from John Doe to the John Doe Living Trust, dated Nov. 30, 2012.

Contrary to your assertion, a trust does indeed hold property (real estate) and any other assets that the person creating the trust chooses to put into the trust. My only concern is that the information you provide may be misleading to some readers. –Lee

DEAR LEE: Thanks for writing. I learn a lot from my readers. In the District of Columbia where I practice, until very recently, a trust could not hold title – only a trustee could do so. However, the law has now been changed so that either a trust or a trustee can hold title.

I also searched the Web, typed in "can a trust hold title," and learned that it can in some states and cannot in others. So, if you are involved in creating a trust, check with your attorney as to the law in your state.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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