We Can Read Your Writing, We Can’t Read Your Mind

Lyle and his son, Steven, purchased a house in 2007, which became Lyle’s personal residence. The title to the property was conveyed to: “Lyle, a single man, and Steven, a single man.” Lyle passed away several years later. The Michigan Department of Health and Human Services (DHHS) filed a claim against Lyle’s probate estate for unpaid Medicaid bills in the amount of $48,084.95. DHHS sought to have the bills paid from Lyle’s share of the property.

Steven filed a petition to reform the deed to indicate a joint tenancy with rights of survivorship, arguing that Lyle intended to create a joint tenancy so that his interest in the property would pass to Steven upon his death – avoiding DHHS’s claim. DHHS responded arguing that by law, the ownership estate created by the deed between Lyle and Steven was a tenancy in common because there was no express language in the deed declaring an intent to create a joint tenancy or an intent to grant a right of survivorship.

The trial court agreed with Steven’s argument and found that the deed created a tenancy in common, but that a latent ambiguity existed regarding the survivorship right. On the basis of the ambiguity, the trial court reformed the deed to comport with Lyle’s intent to own the property with Steven as joint tenants with a right of survivorship. Under the trial court’s ruling, DHHS could not satisfy Lyle’s unpaid bill from Lyle’s interest in the property, because Lyle’s interest automatically passed to Steven upon his death. DHHS appealed.

The Court of Appeals reversed the trial court, holding that although the trial court was correct in finding that the deed’s granting clause (to “Lyle, a single man, and Steven, a single man”) created a tenancy in common between Lyle and Steven, the language of the deed, on its face, was not ambiguous and, therefore, the deed could not be reformed. The Court of Appeals ruled that based upon the clear and unambiguous language in the deed, Lyle’s interest in the property did not pass to Steven automatically upon his death and, therefore, DHHS could satisfy Lyle’s unpaid Medicaid bills from Lyle’s interest in the property.

Under Michigan law, a deed conveying title to two or more persons is presumed to create a tenancy in common unless the deed language expressly declares an intention to create a joint tenancy or a right of survivorship. As happened in Lyle’s case, the death of one co-owner under a tenancy in common does not extinguish the deceased owner’s interest in the property. That interest survives to his probate estate where creditors, like DHHS, can seize it to satisfy their claims. And the courts are powerless to help.

With any legal document, what you meant to say matters little – what matters is what your document actually says.  Deeds and other documents must be carefully drafted to clearly express and carry out your intentions.  Poor drafting can have disastrous consequences. In Lyle’s case, not having the correct language in his deed cost Steven tens of thousands of dollars ($48,084.95 to pay the DHSS claim, plus legal fees).

Work with competent legal counsel to ensure your documents are properly drafted. It can save you and your family a fortune in the long run.

The case is Steiner v DHHS, and you can read the opinion of the Court of Appeals here.

Post-Bankruptcy Mortgage Modification

A client contacted me regarding a potential home mortgage loan modification. The client had filed a Chapter 7 bankruptcy two years ago and received a discharge of all of her debts, including the mortgage loan debt. She wanted to pursue a loan modification under the federal government Home Affordable Modification Program, the “HAMP” program. Her concern was that by agreeing to a modification of the mortgage loan now, she would become personally liable for the mortgage debt that had been discharged in her bankruptcy.

If you file a consumer bankruptcy, you have the option to reaffirm (reinstate) a debt that would otherwise be discharged in the bankruptcy. By reaffirming a debt in bankruptcy, you remain personally liable for the debt after the bankruptcy, which means that if you later default on the debt, the creditor can sue you and recover the money owed through garnishment or other action. In general, bankruptcy lawyers do not recommend clients reaffirm debts since the point of bankruptcy is to shed the personal liability for the debts.

But what if, like my client, you didn’t reaffirm a mortgage debt in bankruptcy and later want to modify the loan. Does the mortgage modification reinstate the personal liability for the mortgage loan debt?

Even if you did not reaffirm your mortgage in your bankruptcy, you can work with your lender on a HAMP mortgage modification post bankruptcy, and the modification does not revive the personal liability for the discharged debt. The current HAMP Handbook, version 4.5 states that “Borrowers who have received a Chapter 7 bankruptcy discharge in a case involving the first lien mortgage who did not reaffirm the mortgage debt under applicable law are eligible for HAMP.” In addition, the following language must be included in the mortgage modification agreement: “I was discharged in a Chapter 7 bankruptcy proceeding subsequent to the execution of the Loan Documents. Based on this representation, Lender agrees that I will not have personal liability on the debt pursuant to this Agreement.”  Furthermore, Section 524 of the U.S. bankruptcy code prevents a debtor and a creditor from entering into any reinstatement agreement after bankruptcy for a debt that was discharged in bankruptcy.

A HAMP mortgage modification does not create a new loan  It changes the terms of the mortgage loan, and you are not agreeing to again be personal liable for the debt. (The only instance where personal liability on a modified loan survives bankruptcy is if you reaffirmed it during the bankruptcy.)

Understand that a loan modification is entirely different from a post-bankruptcy mortgage refinance, where an entirely new loan is being created after the bankruptcy. In that situation, you would have personal liability on the loan because it is a new debt that arose after the bankruptcy.

The HAMP morgage modification program is scheduled to expire December 31, 2016.

Location, Location, Location (Part 2)

A little while back we looked at the 10 worst states for retirement living.  Now we’ll examine the 10 best states for retirement living.  The ranking, courtesy of Bankrate, considered several factors, including local weather, access to health care, cost of living, crime rate and tax burden. This year’s ranking also adds a broad standard-of-living measurement from the Gallup-Healthways Well-Being Index, a comprehensive survey gauging people’s satisfaction with their surroundings.

Surprisingly, popular retirement states like Arizona and Florida did not crack the top 10.  The following are Bankrate’s top 10 states for retirees to spend their golden years:

10. Virginia.  Virginia offers retirees relatively low taxes, low cost of living, low crime, and a moderate climate.

9. Iowa.  Iowa ranked well because of the availability of exceptional health care and a low cost of living.

8. Idaho.  Idaho landed near the top because of its low cost of living, low crime, and lots of sunshine.

7. Montana.  Montana finished in 7th place due to an abundance of sunshine, good health care, low taxes, and low crime.

6. Nebraska.  Nebraska offers residents a low cost of living, low crime, good health care, and plenty of sunshine.  (Good for the corn, too.)

5. Wyoming.  Wyoming made the top five due to the lowest taxes in the country, low crime, and abundant sunshine.

4. North Dakota.  North Dakota made the fourth spot due to its low cost of living, low crime, low taxes, good health care, and placing at the top of Gallup-Healthways’ Well-Being Index (a comprehensive measure of happiness).

3. Utah.  Utah ranked high in every measure, including the Well-Being Index.

2. Colorado.  Colorado took the proverbial silver medal with low cost of living, low crime, low taxes, and good health care.

1. South Dakota.  The top podium spot went to South Dakota (!), which did very well in almost every category, including good health care, extremely low taxes, low cost of living, and low crime.

You can read the entire article here.

Location, Location, Location – 10 Worst States for Retirement Living

Where does one spend their golden years?  A recent USA Today article identifies the 10 worst states for retirement living – at least according to a recent MoneyRates survey. The list was developed using data from 5 major categories, including: senior population; economic conditions [including taxes, cost of living, and unemployment (more seniors are working into their “retirement” years)]; crime; climate; and senior life expectancy. The 10 worst (and reasons why):

10. Alabama. Retirees face a shorter life expectancy and high crime rate.
9.   Michigan. Ranks below average in every category except senior population size.
8.   New York (tie). Low rate of property crime offset by poor climate and below average economic conditions.
8.   Maryland (tie). Offers retirees a high cost of living, high crime rate, and a small senior population.
8.   Georgia (tie). Good climate, but ranks below average in every other category.
5.   Nevada. 2nd worst violent crime rate in the country, plus a poor economy and shorter senior life expectancy.
4.   Illinois. Poor economic conditions and smaller than average senior population size.
3.   Tennessee. Ranks poorly because of high crime rate and shorter life expectancy.
2.   Louisiana. High crime rate, short senior life expectancy, and small senior population.
1.   Alaska. Brutal climate, high cost of living and a weak labor market. Ranks below average in every category.

Please read the entire article here.

Short Sales and Straw Men

A prospective client contacted me regarding the purchase of a house being sold at “short sale.” The prospect explained that the property owner is a relative, and the money to buy the property would be coming to the prospect through other relatives. The family desires to keep the property owner in the house after the sale.

What is a short sale? According to Wikipedia:

“A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens’ full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt. Any unpaid balance owed to the creditors is known as a deficiency. Short sale agreements do not necessarily release borrowers from their obligations to repay any shortfalls on the loans, unless specifically agreed to between the parties. . . A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and borrower. Both often result in a negative credit report against the property owner.” [Footnotes and hyperlinks omitted.]

The essence of the short sale is the bank’s agreement to accept less than the full amount owed in exchange for releasing the mortgage. The buyer receives title to the property free and clear of the mortgage lien.

Obviously, this type of transaction begs for an arrangement between the selling property owner and the buyer so that the seller doesn’t really lose the property. So, sellers desire to make side agreements with relatives or friends to act as a sham buyer, or “straw man.” Once the short sale is complete, the buyer transfers title back to the seller. In practice, this means the seller is able to get the property back at substantially reduced cost, thereby benefiting financially from the transaction. Banks are aware of this and they do not want the seller to gain in any way from a short sale.

To guard against the straw man transaction, banks will require both the seller and the buyer to sign affidavits affirming that the buyer is not a relative, business associate, or has a business interest with the seller, and that there are no hidden agreements between the buyer and seller that would allow the seller to remain in the property or regain ownership after the sale. If it’s later discovered the parties lied in their affidavits, they could be prosecuted for bank fraud.

Best to run away from one of these!

Michigan Land Owners Will Get Property Tax Relief in 2015

Michigan House Bill 5552, signed into law by Governor Rick Snyder, will add much needed exemptions to Michigan’s property tax uncapping law effective for transfers occurring after December 31, 2014.

If you are a Michigan land owner, you know that the annual increase of a property’s taxable value is “capped,” which means that although the fair market value of a parcel of land may increase substantially from year-to-year, its taxable value will increase much less so. However, a property’s value is “uncapped” when the land is sold or transferred. When a “transfer of ownership” of land occurs, the local assessor may reassess the property’s taxable value to equal the property’s then fair market value. In hot markets, or when real estate values increase over many years of ownership, this can result in a substantial increase in the property taxes a new owner would have to pay following the transfer.

In many cases, the increased property taxes are substantial, especially if the property was held by the same owner for many years. If an owner of real estate died and the property was inherited by the owner’s children, they oftentimes did not have the ability to pay the newly increased property taxes and, therefore, would be forced to sell. Whether it was the family home, hunting property, or a family cottage on Lake Michigan, family members who stood to inherit real estate from a deceased relative got no relief under the law.

Under the newly enacted amendment, the uncapping exemptions are extended to situations where the property is inherited by close relatives after the owner dies, whether by will, trust, or intestate succession (where the owner did not have a will).  After December 31, property taxes won’t necessarily increase merely because a land owner dies.  This amendment will improve estate planning flexibility for property owners and will ease the property tax burdens of surviving family members. This is a big win for Michigan land owners.

The new law goes into effect on October 22, 2014.  You can read the enrolled bill here.