[BROKERDIRT] Zombie Homeowners
David Pereira
I am sure most of you have seen the news recently in which homeowners who walked from their homes after foreclosure was filed and moved on in their lives and were unpleasantly surprised that the lender did not complete the foreclosure and now HOA’s, municipalities and other creditors are pursuing them for a lot of money.
A bankruptcy attorney here in California is advocating the following (in his words):
“The idea is make the owner a single asset trust … for which the lender is the sole bene and the trustee is the debtor long enough to accept the deed into trust, then automatically changes to some honcho with the lender, like the CFO, CEO, treasurer, whatever; …Unlike a deed in lieu that by statute can be rejected by the grantee/lender, what the lender would have to do here is renounce the beneficial interest in the trust. Great. Now what? The trust still exists without a bene (which an interested party could go to court and have fixed) but the objective of the HOA fees attaching to the trust corpus has been accomplished without regard to who the bene is. “
I do not like it. Does not pass my stomach test yet I know that it has been done to a limited extent. Wondering what others think of this concept and wonder if you can articulate why my stomach hurts at the thought. Fraud comes to mind… getting the lender in as trustee and bene… all smells.
Conversely, I got to thinking about this further. What prevents the legitimacy of the following scenario:
1. Homeowner creates a trust in which the trustee is a non-U.S. corporation. The corporation is not in business in the U.S. and has no domestic offices.
2. The beneficiary is the lender, should the property ever be sold at a profit, they would get the benefit of the distribution.
3. All the debts of the real property become the debts of the trust.
4. The trust does not have any assets.
Homeowner is out of the way.
Getting jurisdiction over a trustee that is a corporation in another country not effectively doing business in the U.S. is difficult. Someone could go before a probate court and get the trustee removed and put someone else in, but what does that accomplish? Who would have standing to bring such an action? If they were successful, they could not deed the property back to the homeowner as the homeowner could reject the deed. Although I could see a Court declaring the trust invalid in some sort of quiet title action. Who would initiate it?
I am not advocating this. I think it makes for a very interesting intellectual discussion by this group which has gotten quiet.
David Pereira
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April Charney
why would anyone leave their biggest asset/debt without consulting a lawyer is beyond embarassing in this country so rich with lawyers. If the goal is to get the "bank" to poop or get off the pot, then file a qt action and send a waiver and consent to judgment after service.
Sent: Thursday, January 24, 2013 5:39 PM
To: BROKE...@LISTSERV.UMKC.EDU
Subject: [BROKERDIRT] Zombie Homeowners
I am sure most of you have seen the news recently in which homeowners who walked from their homes after foreclosure was filed and moved on in their lives and were unpleasantly surprised that the lender did not complete the foreclosure and now HOA’s, municipalities and other creditors are pursuing them for a lot of money.
A bankruptcy attorney here in California is advocating the following (in his words):
“The idea is make the owner a single asset trust … for which the lender is the sole bene and the trustee is the debtor long enough to accept the deed into trust, then automatically changes to some honcho with the lender, like the CFO, CEO, treasurer, whatever; …Unlike a deed in lieu that by statute can be rejected by the grantee/lender, what the lender would have to do here is renounce the beneficial interest in the trust. Great. Now what? The trust still exists without a bene (which an interested party could go to court and have fixed) but the objective of the HOA fees attaching to the trust corpus has been accomplished without regard to who the bene is. “
I do not like it. Does not pass my stomach test yet I know that it has been done to a limited extent. Wondering what others think of this concept and wonder if you can articulate why my stomach hurts at the thought. Fraud comes to mind… getting the lender in as trustee and bene… all smells.
Conversely, I got to thinking about this further. What prevents the legitimacy of the following scenario:
1. Homeowner creates a trust in which the trustee is a non-U.S. corporation. The corporation is not in business in the U.S. and has no domestic offices.
2. The beneficiary is the lender, should the property ever be sold at a profit, they would get the benefit of the distribution.
3. All the debts of the real property become the debts of the trust.
4. The trust does not have any assets.
Homeowner is out of the way.
Getting jurisdiction over a trustee that is a corporation in another country not effectively doing business in the U.S. is difficult. Someone could go before a probate court and get the trustee removed and put someone else in, but what does that accomplish? Who would have standing to bring such an action? If they were successful, they could not deed the property back to the homeowner as the homeowner could reject the deed. Although I could see a Court declaring the trust invalid in some sort of quiet title action. Who would initiate it?
I am not advocating this. I think it makes for a very interesting intellectual discussion by this group which has gotten quiet.
David Pereira
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Gary L. Marsh
David:
I like your idea a lot more than I like the California bankruptcy attorney’s approach. Making the trust an entity domiciled outside the U.S. has a lot of appeal to me, for the reasons you described. Lately I’ve been recommending Vanuatu as a favored jurisdiction for using strategies that require offshore entities. It’s in the middle of nowhere – cannibalism wasn’t even outlawed there until 1989 – but it does have a small but still robust infrastructure of local attorneys who are perfectly competent to put the kind of thing you are discussing into effect. Also, I’ve found their fees to be relatively nominal compared with, say, the Caymans and other exotic locations. Finally, their privacy protections are second to none, so even finding out much about a trust like the one you’re discussing would be quite problematic for even the most spirited of interested parties. Just some thoughts…
Best regards,
Gary Marsh
Gary L. Marsh, Esq.
MARSH PARLIN LLP
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From: David Pereira [mailto:dper...@LOANDEFECTS.COM]
Sent: Thursday, January 24, 2013 3:39 PM
To: BROKE...@LISTSERV.UMKC.EDU
Subject: [BROKERDIRT] Zombie Homeowners
I am sure most of you have seen the news recently in which homeowners who walked from their homes after foreclosure was filed and moved on in their lives and were unpleasantly surprised that the lender did not complete the foreclosure and now HOA’s, municipalities and other creditors are pursuing them for a lot of money.
A bankruptcy attorney here in California is advocating the following (in his words):
“The idea is make the owner a single asset trust … for which the lender is the sole bene and the trustee is the debtor long enough to accept the deed into trust, then automatically changes to some honcho with the lender, like the CFO, CEO, treasurer, whatever; …Unlike a deed in lieu that by statute can be rejected by the grantee/lender, what the lender would have to do here is renounce the beneficial interest in the trust. Great. Now what? The trust still exists without a bene (which an interested party could go to court and have fixed) but the objective of the HOA fees attaching to the trust corpus has been accomplished without regard to who the bene is. “
I do not like it. Does not pass my stomach test yet I know that it has been done to a limited extent. Wondering what others think of this concept and wonder if you can articulate why my stomach hurts at the thought. Fraud comes to mind… getting the lender in as trustee and bene… all smells.
Conversely, I got to thinking about this further. What prevents the legitimacy of the following scenario:
1. Homeowner creates a trust in which the trustee is a non-U.S. corporation. The corporation is not in business in the U.S. and has no domestic offices.
2. The beneficiary is the lender, should the property ever be sold at a profit, they would get the benefit of the distribution.
3. All the debts of the real property become the debts of the trust.
4. The trust does not have any assets.
Homeowner is out of the way.
Getting jurisdiction over a trustee that is a corporation in another country not effectively doing business in the U.S. is difficult. Someone could go before a probate court and get the trustee removed and put someone else in, but what does that accomplish? Who would have standing to bring such an action? If they were successful, they could not deed the property back to the homeowner as the homeowner could reject the deed. Although I could see a Court declaring the trust invalid in some sort of quiet title action. Who would initiate it?
I am not advocating this. I think it makes for a very interesting intellectual discussion by this group which has gotten quiet.
David Pereira
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Sandra M. Singer, Esq.
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Byron King
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Sincerely,
Byron
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Eppa Hunton
On the question of transfer of the property to trust, two thoughts come to mind (rather superficially). I believe that the taxes and HOA dues have a lien priority ahead of the deed of trust. Thus any conveyance to a trustee would be subject to the existing liens. These items would need to be cleared eventually, before an innocent BFP could purchase the property. You may delay the creditors, but not defeat them. Tax deeds are rare in Virginia, but I do agree that the tax deed should be effective to divest the trustee of title because of the priority of the tax lien.
Secondly, I disagree that a foreign trustee, holding US property, is not doing business in the US. It has an asset in the US and its name and address are in the deed records as the owner of domestic real property. I think that any lien claimant can claim that a local court still has subject matter jurisdiction over the property. If the trustee fails to defend, then the property is still lost to the HO who wants to reside in the property.
Eppa Hunton, Esq.
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From: BROKERDIRT - Real Estate Brokers Discussion Group [mailto:BROKE...@LISTSERV.UMKC.EDU] On Behalf Of Byron King
Sent: Friday, January 25, 2013 9:22 AM
To: BROKE...@LISTSERV.UMKC.EDU
Subject: Re: [BROKERDIRT] Zombie Homeowners
In South Carolina, the property tax sale would occur fairly rapidly after annual property taxes went delinquent and a new owner would take the property with a tax deed from the county.
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David Pereira
I was researching the doing business in US aspect before I made that statement, and while more research is needed, I based the statement on this article by this reputable firm:
http://www.foxrothschild.com/newspubs/newspubsArticle.aspx?id=4294970567
It is a factual determination, based on the extent, continuity and substantial nature of the activity, whether a foreign person’s investment in U.S. real property is considered a U.S. trade or business. To be a trade or business, an activity must be engaged in for profit and with some regularity and continuity, even if not by the taxpayer personally. In contrast, merely managing or preserving investment assets is not a trade or business activity even if engaged in for profit on a full-time basis. As the nature and scope of the activities grow, however, what may initially begin as merely a passive investment in the United States may later rise to the conduct of a U.S. trade or business.
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David Pereira
Good point…
When looking at the essential elements of a fraudulent conveyance (at least under the Ca Civil Code) requires it be with “actual intent to hinder, delay or defraud a creditor”. Intent would be difficult to prove as the real underlying intent is to surrender title to the property of which the debtor has already conceded to creditors that they can have the security and they are refusing. There is no hinder or delay, in fact, hopefully it would accelerate it.
The next essential element would be “without receiving a reasonably equivalent value in exchange for the transfer or obligation”. The property is over encumbered. Payment of $1.00 is more than the property is worth.
Finally, several considerations are at issue per the code:
No (1) Whether the transfer or obligation was to an insider.
No (2) Whether the debtor retained possession or control of the property transferred after the transfer.
No (3) Whether the transfer or obligation was disclosed or concealed.
Maybe (4) Whether before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.
No (5) Whether the transfer was of substantially all the debtor's assets.
No (6) Whether the debtor absconded.
No (7) Whether the debtor removed or concealed assets.
Yes (8) Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or
the amount of the obligation incurred.
No (9) Whether the debtor was insolvent or became insolvent shortly
after the transfer was made or the obligation was incurred.
No (10) Whether the transfer occurred shortly before or shortly after
a substantial debt was incurred.
No (11) Whether the debtor transferred the essential assets of the
business to a lienholder who transferred the assets to an insider of
the debtor.
Keep in mind, the property is completely underwater, the debtor has abandoned it and the creditors are not executing against the property. Certainly no bankruptcy trustee is going to see it as a fraudulent conveyance and overturn the conveyance and make it part of the bankruptcy estate.
Even the HOA is choosing not to execute their rights to foreclose on the security.
Fraudulent conveyance is the best argument but I am not sure it will quite make it, it is a risk.
From: BROKERDIRT - Real Estate Brokers Discussion Group [mailto:BROKE...@LISTSERV.UMKC.EDU] On Behalf Of Sandra M. Singer, Esq.
Sent: Friday, January 25, 2013 2:06 AM
To: BROKE...@LISTSERV.UMKC.EDU
Subject: Re: [BROKERDIRT] Zombie Homeowners
Wont you have an issue of fraudulent conveyance if the property is transferred into a trust to avoid paying HOA’s, municipalities and other creditors
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