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Real estate is always evolving and encompasses a variety of different moving parts, which is part of what can contribute to weird real estate issues. Real estate lawyers have long since found a number of title, lien, and possession issues with some unusual circumstances that have made for interesting cases over the years. To help give readers an idea of what weird real estate issues can look like, we have put together a list of what some of those scenarios might be.

What Weird Real Estate Can Look Like

When you are talking about what weird real estate can look like, the sentiment is a bit of an oxymoron because it is not the real estate itself that is weird. Typically, a real estate related issue such as title, ownership, or possession of a property is what can become the basis for the weird factor.

For example, if someone is seeking title insurance for a property it is so the title insurance company can ensure the fact that buyer or lender received a clear title that prohibits the following:

• Anyone from coming to take the property from them
• An easement messing up the planned usage of the property
• A lien that would have to be paid

The three different areas of real estate that become important in these scenarios include:

1. Who has the title?
2. Are there any liens?
3. Who has possession?

Realistically, any of the above three areas of real estate could potentially be a problem.

How Who Holds the Title Can Become an Ingredient for Weird Real Estate

If a title holder acquires a title by making an illegal loan (one that requires the former owner to give the lender a deed), there is a provision in Texas law that says that is void. If the current owner of the property suddenly tries to evict the homeowner of more than twenty years, it becomes a battle between the title holder and the person in possession of the property. It also creates a problem for the lender who is now not getting paid and is facing questions as to whether their lien on the property is valid.

The Connection Between Weird Real Estate and Easements

Sometimes there could be an easement which may allow someone who does not possess or own the property to still use the property. Many times, this is not an issue because it is common to have an easement for someone like the power company so power lines go to the house.

The problem can happen when the usage of a property cuts off access to the property. If someone else has the right to use the front part of a property and does so constantly in a way that interferes with a person’s rights to the property, it can create a problem.

There are some legal mechanisms to deal with this although they are not foolproof. If access to the property is restricted due to an easement, it will either be necessary to deal with the easement holder or for the owner to simply find an alternative point of access, which typically devalues the property.

It is worth noting that easement issues can develop over time. For an example, what used to be an easement on a person’s property for two or three families to make their way to church once a week through an area can become tricky when years later a subdivision is established and grows, as now it yields dozens of people crossing over that same property to get to church.

Potential Issues with Estates and Trusts

If a person passes, a will generally makes it easier to determine who gets possession of a property. Without a will, the rights to a property can become a gray area because it involves searching for family and heirs and such.

Should there be no will, but thirty family members or potential heirs were found, it requires either:

• Getting all thirty people to agree on what to do with the property, or
• Taking the battle to court for partitioning of property, the sale of the property, and distribution of the purchase funds

Trusts are no stranger to weird real estate issues either. If a trust is the owner of a piece of property, then it requires you to deal with the trustee, who will be governed by a trustee agreement or document. This legal document will dictate what the trustee is allowed to do.

It may be possible for a person to set up a trust and twenty years later the trustee passes away and the trust certificate is nowhere to be found. This type of situation usually requires a court of law to get involved for a resolution.

If there is a legal way to resolve a weird real estate situation like any of those mentioned above or another one altogether, a reputable attorney should be able to find it.

One of the most common questions a real estate attorney can receive is, “What does cleaning up a title to real property mean?” This phrase and the terminology in it are used frequently when working on real estate matters. To help those entering into these types of transactions, we have created a basic road map of what it can mean to clean up title to real property.

Cleaning up Title to Real Property

There are three keys to cleaning up a title to real property:

1. Have the whole title
2. Get possession of the property
3. Ensure there are no liens

Someone who wants to buy a piece of property (whether it be a house, ranch, office building, or some other type of property) generally needs to make sure they have a title to the property and that it is properly recorded. This helps confirm the title is in their name so no one else can say they own it. If another party does try to say the own it, the person can show they have a superior claim and that they are indeed the owners. A purchaser’s goal should be the whole title.

A buyer should also want to be able to possess the property. This means they should not have to deal with issues such as squatters or tenants on the property that have to be evicted, or any other people who are occupying the property that may have some legal claim to do so. They want to get possession.

The purchaser also must ensure the property is free and clear of liens so there are no tax liens, and no prior owners have abstracts, a judgement, a mechanics lien on the process, or that no one else has a mortgage on the process. The purchaser may have their own mortgage but they go to a mortgage company voluntarily so they can allow them to buy the property. A purchaser wants to make sure there are no other problems with that.

There could be properties that have problems such as being adverse to the current owner who is occupying the property and would need to be evicted. Maybe they have some claim that would require more than just a regular eviction process and may ultimately result in a lawsuit and a determination regarding whether they have any ownership or title rights to the property. There could also be liens filed against the property that may or may not be valid and may or may not be in statute. Some liens may have two and four year statutes, for which if the lien holder does not do anything, sue to enforce their rights or foreclose on the property, they lose those rights.

There could be a situation where there are liens on the property that are more than four years old. If that is the case and the liens matured more than four years ago, an attorney should be able to get those eliminated. If the liens are three years old, it may make more sense to simply wait a year and if the owner does not do anything, then attorneys can begin cleaning up in the process.

There may also be situations where there is an estate and the property is in the estate. There could be liens against property in the estate. If there is more than one beneficiary, the beauty of that is there is a court that can clean up whatever it is. If there are lien holders, the court can determine the validity of the lien. If there are beneficiaries, the court can determine if all the beneficiaries agree what to do or if the executor has the power to do that. If an agreement is needed and cannot be reached, the court handles that, which can include selling the property.

An attorney can take a piece of property and open title with a title insurance company. The company then determines what sort of liens, claims and title hiccups are present and need to be dealt with. Then we go through the process of trying to deal with those. This may mean getting a release from somebody who had a lien who got paid off but did not release the lien. Or it could be a matter of determining if the statute of limitations has run out or not. Other times it may be necessary to determine who needs to be paid and how much in order to get whatever liens there are released in the process. Taxes can be a good example of this as they tend to stay with a property no matter who owns it, and at some point in time they must be paid.

The Title Company’s Role

The title company is the one that will tell an attorney and purchaser what needs to be cleaned up. Then those parties can go about cleaning it up. Generally, if a title company is willing to insure title, then the title company will be willing to defend and pay lawyers to defend the claim and ultimately pay money to resolve the claim if it turns out that there really was a problem and some party really does have a lien or ownership claim to the property that was originally insured at the closing.

When someone is either buying or loaning money on a property, they want to make sure they have a clean title. An experienced and reputable attorney can help you go through the process to make sure that the title is clean and work with the title insurance company so a buyer can get the title insurance and move on with their transaction.

 

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Trusts can be an excellent estate planning tool in order for an individual to provide for their heirs, but when a trust is formed in a reactive effort to avoid judgements or creditors, it may be possible for the law to see a fraudulent transfer in play, and that has the potential to come with serious consequences. However, if an individual works closely with an attorney to proactively establish a trust under valid circumstances, it can be effective for the person forming the trust as well as their intended heirs.

To better understand this topic, we will define what a fraudulent transfer is, how it may happen in relation to a trust, and what it can mean for creditors.

What Is a Fraudulent Transfer?

When defining the legal term fraudulent transfer, there are two primary prongs to keep in mind:

1. Actual Intent: If a transferor transfers money or property to another person, entity, or a trust with the actual intent to delay, hinder, or defraud one or more of their creditors, then the law usually sees that as a fraudulent transfer. For this reason, it can be set aside by the creditors or a bankruptcy trustee.
2. Constructive: Without regard to what the transferor’s original intent was, if the transfer was made at a time when the transferor was insolvent or had insufficient capital to continue operating and the transfer does delay, hinder, or defraud one or more creditors, it can be considered a constructive fraudulent transfer. It too can be set aside with certain legal action by creditors or the bankruptcy trustee of the transferor.

As we move forward to discuss how fraudulent transfers come into play for trusts, it is recommended to keep this information in mind.

How Fraudulent Transfers Can Come into Play When There Is a Trust

People set up trusts for a number of different reasons and then transfer money and property to them. Trusts are usually formed to benefit a beneficiary after the person forming the trust has passed.

There are three main roles in the formation of a trust:

• a donor
• a trustee
• a beneficiary

In the eyes of the law, someone could be two of those three persons, but not all three because one person performing all of these roles could manipulate them for self-benefit.

To learn more about how a fraudulent transfer can come into play when there is a trust, let us consult the following examples:

• The Typical Trust: In this type of situation, it is common to see a grandparent put together a trust for their grandchild to eventually go to college. To do this, during the grandparent’s lifetime or as part of their will, they will set aside a fund of money or property (that can be sold at a later time to gain money) to be put into a trust so that money or income source can eventually pay for the grandchild’s education. The grandparent may even appoint their son or daughter to be the trustee in the event that they die before the grandchild becomes of college age.

Despite the grandparent appointing one of their children to be the trustee of the funds, it is typically not considered an asset to them. In the situation that the trustee was to experience financial problems such as judgements or bankruptcy, these are not considered the trustee’s funds. Although the trustee controls the funds for their child, the funds do not belong to them. The funds belong to the beneficiary or grandchild of the deceased party. Therefore, if there were to be a judgement against the mom, it would not allow creditors to garnish the funds in the trust account.

• A Fraudulent Trust: If there is an individual who believes they are about to get a judgement against them and they have some money they would like to keep creditors from getting to, they might decide to quickly establish a trust that they pour all of their assets into and say it is for the benefit of their heirs. In this case, the transferor established the trust with the primary intent to defraud their creditors. The transferor was likely also insolvent, which can make it harder for creditors.

Either under an actual intent or constructive prong of a fraudulent transfer, the creditors would be able to sue the trust or the trustee and force the trustee to pay the funds or property that was fraudulently transferred to the creditors to satisfy their judgement. If the transferor filed bankruptcy, the bankruptcy trustee can sue the trust and recover the money for the benefit of the creditors.

A Final Word to Creditors About Trusts and Fraudulent Transfers

Essentially, there are good trusts and bad trusts.

Making sure that money is transferred properly in a way that creditors of the trustee cannot get to it is important if you are doing estate planning.

It is also important to read the situation if you are a creditor and run across a situation where the debtor you are dealing with does not have any money, but somehow there is a trust around for the benefit of one of the debtor’s relatives or judgement creditor.

Just because there is a trust out there for a debtor, does not necessarily mean a creditor cannot recover it. This depends heavily on the facts and circumstances around the trust, such as how it was funded and how the transfers were made.

Know the waters that you are swimming in when forming trusts and transferring assets into them and dealing with the creditors who may want to grab those assets. Make a lawful trust part of your estate planning process today with a reputable attorney to better protect a portion of your assets and ensure they are set up to benefit your intended beneficiaries.

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Although fraudulent conveyance can have many applications in a variety of situations such as suicide or divorce, we will focus on if a divorce can be a fraudulent conveyance, and if the creditors of one spouse can go after the creditors of a now former spouse after a divorce. While this not necessarily a pleasant topic to discuss, it is something we have seen in my office and does require addressing.

What Is Fraudulent Conveyance or Fraudulent Transfer?

The first step in determining if a divorce can be a fraudulent conveyance is to properly define the term which is also commonly referred to as fraudulent transfer. A fraudulent conveyance or fraudulent transfer can take place when someone who is a debtor owes money because:

• They have defaulted on a loan
• They have a judgement against them
• They obtained money or property through wrongful means

This debtor then owes one or more creditors a specific amount of money because of one or more of the above situations.

What Might a Fraudulent Conveyance or Fraudulent Transfer Look Like?

In general, people that have defaulted on a loan, have a judgement against them, or have wrongfully obtained money or property, will try to hide this fact so that when they eventually file bankruptcy or a creditor tries to collect a debt, the individual will not appear to have anything.

The most common ways these individuals try to hide their assets can include:

• Hiding assets in Swiss bank accounts (although this does not work as well as it used to)
• Putting the assets in offshore bank accounts
• Giving the assets to their parents, wives, children, or grandchildren
• Burying physical gold in their backyard

What the Law Says About Fraudulent Conveyance in General and Regarding Divorce

In general terms, the law does provide some relief to creditors in the form of fraudulent conveyance or fraudulent transfer through either:

1. The Uniform Fraudulent Transfer Act
2. Chapter 5 Bankruptcy Code provisions that give a bankruptcy trustee the power to go after those individuals who have received a conveyance in connection with an effort to defraud a creditor or creditor population

In terms of divorce, one technique a married individual that is being chased by creditors or is trying to proactively hide assets from creditors may use is to get a divorce. In the formal divorce process a formal divorce decree may be issued allowing the individual’s soon to be ex-spouse get an unusually large share of the assets or property of the marital estate.

For the purposes of a trial, it is necessary to prove actual intent that a party gave property or money to a spouse in a divorce for the purposes of fraudulent conveyance. However, if unable to prove actual intent, both the Uniform Fraudulent Transfer Act and the bankruptcy code (which most states including Texas have adopted in one form or another) have provisions that say even if actual intent cannot be established, if the debtor’s actions show the circumstances were such that the individual had knowledge that a judgement was likely going to be rendered to him and there was liability that would lead to a judgement, it could lead also to intent.

If there was indeed a transfer via divorce (a divorce decree is going to transfer property which can prove a transfer) at the time the debtor was insolvent, meaning their debt or potential debt exceeded the value of their assets, or it delayed, hindered, or defrauded any creditor, then the transfer (i.e., the divorce or divorce decree) is subject to a fraudulent transfer action. This means that either a bankruptcy trustee or a creditor of the debtor can go after and seize the assets that were given to the spouse in the divorce, or they can obtain a judgement against the spouse and collect whatever other assets they may have.

When it comes to fraudulent conveyance or fraudulent transfer in a divorce, it is generally not an easy case to make, but under the right circumstances and when working with a reputable and seasoned attorney, it can work, and is a tool that creditors can use to avoid being defrauded. For further questions regarding fraudulent conveyance or transfer, reach out to our office today.