Son is living at home with us and is a student with minimal income monthly. Home is being rented out but we are paying $200 more in first/second mortgages than what we are receiving rent for.
What is your reason for wanting to do this?
Frankly, the bankruptcy trustee will consider it to be a fraudulent transfer even though there is no equity, and you will be shooting yourself in the foot by removing several legitimate deductions you may need on the Means Test and expenses on your budget.
Please retain an experienced bankruptcy attorney to help you to plan your case before you think up any more goofy schemes like this!
Hope this perspective helps!
My colleagues offer good advice, but don't directly answer your question.
Yes, you can transfer the property. BUT..... why do so? There are NUMEROUS consequences and issues, most of them negative. Here are a few
First, is your son going to be able to pay the 1st and 2nd and property taxes and insurance with his minimal income monthly?? If not, surely the bankruptcy trustee will be unhappy that you are deliberately REDUCING your income and INCREASING your expenses, so your son can have his own party pad. That alone may get you tossed out of bankruptcy.
Unless your son refinances the property so the loans are only in his name (unlikely unless he is putting cash down and how could he qualify with minimal income), transferring the property to him without your current lenders' permission is likely a technical breach of the mortgage/deed of trust, which usually gives the lender the right to "call" the loan for payment in full. If the payments continue to be made timely, most lenders don't really care, but the Bankruptcy Trustee might care.
If you transfer the house to your son, but he doesn't refinance it, then you are still liable on the loans and he really hasn't paid anything for the house. You might try to get around this with a "wraparound" mortgage or AITD (if such a device is used in SC). However, I agree with my brethren that the Bankruptcy Trustee may consider this a fraudulent transfer and or a preference (your son got something for nothing) and unwind the transaction.
If you can get past these two issues, you should invest in an appraisal from a respected, licensed (if appraisers can be licensed in SC) appraiser familiar with the area. The appraisal will support your claim that the house is worth less than the liens against it, so it had no value to your estate. This might save you from the fraudulent transfer or preference claims, especially if your son refinances the loans out of your names.
But I must ask again, why? Ms. Bunce raises an important issue that the rental home may be more beneficial to you than you think. Please take her advice, and mine, and seek specific advise from an experienced bankruptcy attorney in your area.
Good luck!
I sure like Mr. Ireland's thoughtful answer. I add only that the Trustee is not very likely to exercise any of their powers to rescind the transaction UNLESS TRUSTEE SEES A WAY TO MAKE MONEY FROM THE DEAL.That seems very unlikely under the facts you mention.
The easiest and best course is to file bankruptcy and THEN give the house to your son, if you insist. But get the advise of a good attorney first. Good luck.
