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Car accident may wipe out home equity

August 5th, 2008 12:24 PM by Ron Mastrodonato

Car accident may wipe out home equity
Family eyes quitclaim strategy in face of mounting debt

August 01, 2008

By Ilyce Glink
Co-written by Samuel J. Tamkin
Inman News

Q: If we quitclaim our home to my sister, can someone place a lien against the property if the creditors are chasing us?

Second, we have a private lender who has a second mortgage on the property. Does this affect us when we quitclaim the house?

We are being forced into this position as my husband was in a serious rear-end car accident in 2000, and the insurance company will not settle the case. We are set for trial in June 2009. The insurance company has paid for none of the hospital bills, doctor's bills or anything since the accident. My husband is permanently disabled because of this accident, and is in the hospital all the time. We have depleted our IRA and his retirement money in order to live these past nine years, as he needed 24-hour care. The only thing that we have left is the equity in our home, and we are selling it in order to survive. But if all the people who have not been paid over the years place liens against the property we will have nothing left of our equity.

So are we safe by quitclaiming the house to my sister?

A: You are in a tough situation and I am sorry for the troubles you are going through. Let's start with your question relating to quitclaiming your property to your sister. I'm afraid that option is probably not a good one for you. If someone has already placed a lien on your property, quitclaiming the property to someone else will not help you out. In addition due to your circumstances, if you quitclaim the property to your sister, that transfer may be considered a fraudulent conveyance. In many states, creditors are given the right to look back at the assets that a debtor had and may have transferred and not received any money for the transfer. They could try to undo the transfer and your sister would become part of the litigation.

If you're concerned about having a lien placed on your property because you are the defendant in the litigation, there may already be a lien placed on the home as a result of the litigation. If you are concerned about having a medical service provider, or other people who have given you money and taken loans from you place a lien on your home, they could still sue you and sue your sister to void the transfer.

You should see if there are any unexpected liens that affect your home. In many counties, you can now do a search online to determine whether a lien has been placed on your home. Check with your local county or local recorder of deeds Web sites so you can review any clouds to your property's title.

It's probably important that you take a look at what is going on with the title to your home. If you can't find the Web site, you can go in person to the office where deeds and other legal documents are recorded and ask to review your property's file. If there are no liens placed on your home and you can sell the home before any liens are placed on the home, you would sell the home and have the proceeds from the sale in your hands.

Let's assume there are no liens on your home. If you quitclaim your home to your sister and she doesn't pay you cash for the property, that transfer of wealth from you to her could be challenged at some later date by your creditors.

If you're in the process of selling the house, your best option is to stay the course and get your home sold. Once the home is sold, you can pay off the creditors who have liens on your home, including a first or second mortgage lender.

If in the course of the litigation, someone placed a lien on the home, you may have to pay off that lien also or deposit the funds to pay off that lien with the court handling the litigation. More importantly, once you have the money from the sale of the home, you can use those funds to pay for any of the bills that have come due for your husband's care.

Unfortunately, other than selling the property and getting the cash in hand from the proceeds from the sale, there isn't much a person can do in terms of asset protection once litigation has started or creditors have filed liens against a home.

On a second issue, if you feel that your insurance company or the other party's insurance company has failed to meet its obligations under your policy or under the policy that covered the other driver, you might want to seek assistance from the department that regulates insurance companies in the state in which you live. Some states are better at handling those complaints than others.

Also, some states have consumer-protection-type statutes that give you the right to challenge the insurance company's denial of your claim. While you have not indicated the specifics of your insurance claim, you certainly are spending lots of time and money related to the accident and the injuries relating to the accident.

Depending on your case and circumstances, you might find it worthwhile engaging the services of an attorney who might sue the insurance company to force them to pay up.

If you started that process and that is what is coming to trial next year and you are the plaintiff in the litigation, you might have to wait until the trial date to see where things end up. Your attorney should be able to advise you on whether the insurance company might be liable for its failure to settle. In some states, that failure to settle, if done in bad faith, can lead to an increased recovery to you, if you are the plaintiffs in the case.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

Posted in:General
Posted by Ron Mastrodonato on August 5th, 2008 12:24 PM


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