The Effect of Bankruptcy on the Transfer of Real Property

Bankruptcy Terms:

 

Filed – The debtor, or in some cases a creditor of the debtor, files a petition with the bankruptcy court.  The court then reviews the petition and determines whether or not the debtor qualifies for bankruptcy.

Dismissed – If the debtor does not qualify, then the bankruptcy is dismissed, which simply means that the debtor is not in bankruptcy and is place back into the position he/she was in prior to the filing of the bankruptcy.

Automatic Stay – If the debtor qualifies, the court enters what is known as an “automatic stay”, which means that the creditors of the debtor are prevented from pursuing actions against the debtor.

Discharged – A Chapter 11 or Chapter 13 bankruptcy case is “discharged” upon the completion of the approved reorganization plan.  The case is no longer open and pending at that point, and usually the debtor can sell, purchase, or finance real property during that period without formal court approval.  A Chapter 7 bankruptcy case is often discharged long before it is closed, and formal court approval of a transaction is usually necessary.

Closed – When a Chapter 7, Chapter 11, or Chapter 13 bankruptcy case is “closed”, it is over.

Trustee – An individual appointed by the bankruptcy court to supervise the bankruptcy.

Abandonment – The process whereby the trustee “abandons” property from the bankruptcy estate, thereby releasing it to the debtor.

  

 

Closing a Real Estate Transaction

In a Chapter 7 bankruptcy, a prior to the court approval of the reorganization plan in Chapter 11 and Chapter 13 bankruptcies, a debtor must obtain one of the following in order to sell, purchase, or finance:

1)      1)      A formal court order signed by the bankruptcy court judge approving the transaction and granting relief from the automatic stay to do the transaction, or

2)      2)      A formal “abandonment” of the subject property from the bankruptcy estate issued by the trustee assigned to the bankruptcy case.

 

Once the reorganization plan is approved in a Chapter 11 or Chapter 13 bankruptcy, the transaction can be closed if it is specifically authorized in the plan.  If the transaction is not specifically authorized in the plan, then the above (1) or (2) must be obtained in order to close the transaction.

 

 

Judgment Debts and Liens

 

The debts of the debtor (except for alimony and child support debts, student loan debts, and tax debts) that are incurred before and during the bankruptcy are usually “discharged” in connection with the bankruptcy case.  The fact that a debt is discharged does not mean that a judgment lien (evidencing the debt) is automatically removed as a lien on the real property interests of the debtor that are part of the bankruptcy estate.  In other words, a judgment lien will still attach to the property even after a bankruptcy is discharged and closed unless the lien is removed pursuant to an “order avoiding the lien”, issued by the court, or a customary release of the lien delivered by the judgment creditor.

 

 

Fraudulent Conveyance and Preferential Transfers  (deeding away property before the bankruptcy)

 

 A transfer within three years prior to the filing of a bankruptcy petition that is made with the intent to hinder, delay, or defraud a creditor of the debtor may be avoided by the trustee (the trustee treats the transaction as if it did not occur).  The red flags to these types of transfers may be:

1)      1)      Deeds to spouses, friends, or family trusts without payment, or

2)      2)      A new trust deed specifying a friend or relative as the beneficiary where no money is “loaned”.

 

Equity Title Utah is a Title Insurance Company with 17 branch locations throughout Utah and a title and order processing plant. (Millrock, Sugarhouse, Cottonwood, Union Park, West Jordan, Redwood Road, Draper, American Fork, Orem Center Street, Ogden, South Ogden, Layton, Bountiful, Tooele, Park City, and St. George)  To contact us, call 801-492-1206

 

The contents contained herein are intended for general informational purposes only, and should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances.  Anyone needing specific legal advice should consult an attorney.

Mechanics Liens

The Basics:

Mechanics liens are generally filed by contractors or suppliers who have not been paid for services or materials provided. Mechanics liens may be filed any time within 90 days of when the contractor or supplier last performed work or supplied materials on the property. The effective date, or date determining the priority of the lien is when the very first work commenced or when the first supplies were delivered in connection with the construction. Even though recorded after a warranty deed or deed of trust, a mechanic lien may have a senior priority date.

 

The Problem:

Mechanics liens may become a cloud on title even before they become “of record”. Title searches are performed using recorded or filed documents. Where mechanics liens can be retroactive, the title company has to look at the possibility or signs of mechanics liens becoming of record at a later date (recent construction or improvements to the property). Even with title coverage against mechanics liens, buyers are not shielded from the hassles of mechanics liens cropping up at a later time.

 

The Solution:

Before title can be insured against mechanics liens the title company needs to be assured that any construction work or improvements on the property within the past 90 days have been paid for. This assurance may come through one or more of the following: 1)Lien waivers from all contractors and suppliers. 2)Sufficient money in escrow. 3)Indemnification from seller and general contractor. ASK THE RIGHT QUESTIONS. To protect your buyers, agents need to find out what construction work has been performed and when, and make sure that all contractors and suppliers have been paid.

 

The contents contained herein are intended for general informational purposes only, and should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. Anyone needing specific legal advice should consult an attorney

 

Equity Title Utah is a Title Insurance Company with 17 branch locations throughout Utah and a title and order processing plant. (Millrock, Sugarhouse, Cottonwood, Union Park, West Jordan, Redwood Road, Draper, American Fork, Orem Center Street, Ogden, South Ogden, Layton, Bountiful, Tooele, Park City, and St. George)  To contact us, call 801-492-1206

What Is Title Insurance and Why Do I Need It?

Land endures. Because land endures over generations, many people develop different rights and claims to a particular property. Governmental agencies, public utilities, lenders, private contractors and sub-contractors also have rights to property. The rights of a current owner – which often involve family and heirs – may be obscure.

Before a real estate transaction closes, we perform an extensive title search and individual examination of all recorded documents; and we issue a Report. This allows any title problems to be cleared up prior to the closing.

Even after the most careful research, some title flaws may exist and may go undetected. Among the more common flaws are forgery, mistaken legal interpretations, invalid court proceedings, defective deeds, confusion due to similarity of names, previously unrecognized rights of spouses and undisclosed heirs. These problems may surface at any time in the future.

Title Insurance is the most effective, most accepted and least expensive way to protect your real estate investment. The investment of every owner and lender are routinely insured by standard Owner’s and Lender’s policies. Each policy we issue is our agreement to assume the responsibility for the defense of your title – under your policy’s terms and to reimburse you for actual financial losses up to policy limits.

Premiums for title insurance are moderate and one-time-only fees. There are no renewal premiums and it never expires so long as you own the property.

Title Insurance protection is an important part of the bundle of services you receive from Equity Title Utah.

Equity Title Utah is a Title Insurance Company with 17 branch locations throughout Utah and a title and order processing plant. (Millrock, Sugarhouse, Cottonwood, Union Park, West Jordan, Redwood Road, Draper, American Fork, Orem Center Street, Ogedn, South Ogden, Layton, Bountiful, Tooele, Park City, and St. George)  To contact us, call 801-412-4636