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Transfer Deed of Home To Avoid Student Loan Payments

Ask the Real Estate Lawyer: Real Estate Law Q&A

REM #LAW625

By Ilyce R. Glink and Samuel J. Tamkin

Summary: A reader wonders if his partner can transfer the deed to their home to him and avoid paying off a student loan bill. Ilyce and Sam discuss the legal and ethical angles to this proposition.

Q: My partner and I have been together for 20 years. About three years ago, I received an inheritance that allowed us to pay off our house.
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My partner has epilepsy and recently had a very strong seizure that resulted in a broken leg in several places. His seizures are coming more frequently and he is unable to work. He has about $60,000 in student loan debt.

I am considering having him quit claim the house to me because I don't think he is going to be able to work any longer to pay the student loan. Will this appear as some type of fraud for hiding assets? Also, is it safe to do the quit claim ourselves by getting the forms off the internet? Any advice you could give would be greatly appreciated.

A: First things first. If you haven’t already done so, you should make sure that you and your partner have written valid wills, that you have each designated a person to take care of each other’s assets and affairs in case of a long term illness or accident, and that you each have designated someone to make medical decisions on your behalf.

An estate planning attorney should be able to help write a valid will, a durable power of attorney for financial matters, and a durable power of attorney for health care. While these estate planning components are important for everyone to have, they’re vital when two people share their lives and assets but are not married.

Now, let’s think about your ethical dilemma. It seems that you are aware of the fact that if your partner transfers his assets to you and then is unable to pay his debts, you may be participating in a fraud and to that degree you are correct. Each person is responsible for his or her own debts and to the extent any of us has assets that can be used to pay these debts, we must use all or some of the assets for that purpose.

Creditors have a legal right to pursue your partner for his debts when and if he stops paying his obligations. They do not have a right to pursue you, as long as you are not married to your partner.

Depending on whether a person files for bankruptcy or not, different laws will apply to determine whether a transfer of assets from someone in debt would be considered a fraudulent conveyance.

Generally, if you transfer assets (including a home or money) to a third party that is intended to deprive creditors of a valuable asset, it would be considered a fraud. But there may be other circumstances that cloud the issue.

For example, parents might transfer ownership of their home to their kids or give gifts of money to their grandkids. Even though the parents have debts and that transfer of cash or property causes the overall assets of the parent to diminish, the transfer may be okay if the parents continue to pay all of their bills as they come due. If the parents run into financial trouble seven years later, it’s unlikely a court would require the transfer of cash or property to be unwound.

In some cases transfers of assets within a year of filing for bankruptcy will cause a problem to both the debtor and the recipient of the asset. In other cases, such as with Medicare costs, the transfer of assets within three years to five years are often reviewed -- and reversed.

So it isn’t easy to figure out whether transferring the house into your name would be fraud or not. And, your particular case has some interesting issues.

Your money was used to pay off your partner’s debt. As part of that transaction, your partner could have transferred his interest in the home to you, but only if the interest in the home equaled the amount of his share of the loan. While there are many factors to consider, you can try to determine what your share and your partner’s share of the equity in the home was prior to paying off the mortgage.

If you paid most or all of the expenses in the home, including the mortgage payment, taxes and insurance payments, it’s possible that your partner owes you a considerable amount of money for what he should have contributed to the property over time.

If he does owe you this money and you have kept good records, including copies of your tax returns indicating that you paid for these expenses and took the deductions for them, you may be able to claim that the transfer of the home from your partner to you when you paid off the mortgage was merely taking the amount of money he owed you into account.

If your partner files for bankruptcy in the near future, this argument may not withstand a court challenge, but the longer the period of time, the better off you will be.

Stay away from Internet sites that claim to offer forms that will transfer title to property. Many “legal” documents on the Internet are so generic that they may not be acceptable in the county in which your home is located. For a few hundred dollars, you might be able to pay a local attorney to prepare the documents for you.

If you’re searching for a less expensive way to get the right documents, talk to a representative from one of the many title companies located in your area. In some cases, title companies have forms that you may be able to use. Or, you may be able to have someone at the Recorder of Deeds office help you complete the form.

Keep in mind that if the form is completed wrong or you fail to fill it out correctly, your deed may be invalid and the transfer of ownership may be invalid. So make sure you get it right the first time.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website www.thinkglink.com