Question #1

Question:

I am a real estate agent. I have a client who owns a house and is not working at this time. She has a mortgage of about $110,000. Her boyfriend has been making the monthly payments since she bought the house. Now she does not want the house anymore. She told her boyfriend that she will transfer the house to him if he gives her $25,000. Her boyfriend has very bad credit so he does not qualify to buy the house. Recently she had surgery and the county paid all her expenses at the hospital. If she gives a grant deed to her boyfriend and he records it, will the bank call the loan? Will the county record a lien on the house due to the fact that the hospital paid for the surgery?

Answer:

While it is always hard to guess just what someone else might do in a particular case, this is one where I would urge caution on the part of your client.

Typically, most promissory notes and deeds of trust prepared by banks and other institutional lenders contain a “due on sale” clause which allows them to call the loan due if the borrower transfers the property, or any interest in the property, to someone else without the lender’s consent. If that clause is in your client’s loan documents, it would give the bank the legal right to call the loan, but whether it would actually do so would be a business decision on their part. However, since the boyfriend is not terribly credit worthy, this might make them more ready to call the loan than if he had a stronger financial position.

I’m not familiar with the law involving payments of medical bills by the county, but if it allows them to put a lien on a patient’s property, they might try and set the transfer of the house aside as being a conveyance in fraud of creditors. A “fraudulent conveyance” is one by an owner of property for less than adequate consideration, which prevents a creditor from reaching the property in order to satisfy its claims. The question, then, is whether $25,000 is adequate consideration for the house. If there is only $25,000 in equity, and the boyfriend also agrees to assume liability under the loan, then it might suffice. Unfortunately, this would be a question of fact to be determined by the court if the transfer was ever attacked.

Please be advised that any transfer of real property can involve significant tax and legal consequences, particularly where creditors are involved. Accordingly, your client should not transfer any interest in her property without first speaking with her own attorney and tax advisor, who can give her specific advice tailored to her particular circumstances.

question date: 8-9-01

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Question #2

Question:

Could I please ask you a question in regard to a Lis Pendens. The Lis Pendens was filed on February 6^th against a Seller or a property by parties which had a lawsuit against him.

The Seller sold his property to another buyer on February 8^th, without informing the new buyer of the lawsuit. Apparently the title company did not catch the Lis Pendens.

My question is this: is the sale still legal? I believe it is, but when then happens to the Lis Pendens? My understanding was that Lis Pendens is against a person as opposed to being against any particular property. Is that correct?

Answer:

What a Lis Pendens does is to impart constructive notice to the world that the plaintiff has filed a lawsuit concerning title to, or the right of possession of, a particular piece of real property. A sale of the property is legal; it simply means that whoever buys it does so subject to the outcome of the plaintiff’s lawsuit. In other words, if the plaintiff wins, it could negatively impact the buyer’s title, if not divest him of it altogether. For this reason, title companies generally will not insure a sale where the property is subject to a Lis Pendens.

In this case, the title company could have simply missed the Lis Pendens during the searching process, or they could have made an underwriting decision that the Lis Pendens was in some way invalid. Given the relative proximity between the recordation date of the Lis Pendens and the date of the sale, however, I would suspect that the Lis Pendens simply had not yet been posted to the title company’s plant information.

One thing to note, though, is that even though the Lis Pendens was recorded prior to the sale, it would not be as effective against the new owner unless it was properly indexed by the county recorder’s office before the buyer’s deed recorded. Case law holds that it is the date of indexing, not the recordation date, that determines when a document imparts constructive notice to the world. Generally there is a two (2) to three (3) day lag time in most recorder’s offices between the recordation date stamped on the document and the date it is actually indexed, it is possible that the Lis Pendens had not yet been indexed when the buyer’s deed recorded.   If that’s the case, then the buyer would take title free and clear of the Lis Pendens and the underlying lawsuit.

question date: 6-17-02

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