Monday, July 21, 2014

Your broken leg is now the Trustee's broken leg. Feel better?

File for bankruptcy court protection and you give up all of your potential claims, including claims for personal injury, to the bankruptcy trustee.  The District of Columbia Court of Appeals July 3, 2014 decision in Atkins v. 4940 Wisconsin, LLC forcefully makes the point.

Financial strain pushes well intentioned and honest folks into bankruptcy.  It is an honorable tool for re-establishing your financial life, and wiping away crushing debt.  What is often forgotten, though, is the debtor's duty to disclose not just all claims he may have against others, but any possible and contingent claims.  At the moment you file for bankruptcy protection by delivering your petition to the court, every right of recovery you have becomes "property of the estate."

And it is the court appointed bankruptcy trustee, often a lawyer, who has absolute control over the claim--not you.

Mr. Atkins tried to game the system.  His bankruptcy petition conveniently omitted reference to his potential slip and fall case. He later sued to recover money, and the defendant he was suing argued it was not Mr. Atkins' claim to make, anymore.

The court of appeals confirmed that Mr. Atkins could not bring the claim.  His failure to list the personal injury claim in his bankruptcy petition amounted to a statement that he had no such claim. And since the bankruptcy petition and schedules were submitted under oath, the statement that he had no such claims was under the penalties of perjury. His later claim in a separate lawsuit was thus inconsistent with his prior disclosures to the bankruptcy court.

You can't swear to the absence of a claim in your bankruptcy petition and schedules, and later assert a claim in a lawsuit to recover money.  The court will hold that you are not allowed to bring the claim. When you are prohibited from asserting a claim because you took an inconsistent position in an earlier case, it is called "judicial estoppel."

We most often see this issue arise in cases where parties have prepared legal papers without the assistance of counsel.  As we have suggested in a prior post, do-it-yourself law is risky business.

Friday, July 11, 2014

Delivery means giving up control of the deed.

 Ownership of your home is transferred by a written deed. It is very common to jointly title a home in the name of a husband and wife to keep the house out of probate.  It is easy to write a deed that says "Joe gives this land to Joe and Jenny, as husband and wife," so that the married partners jointly own the home. And when one or the other dies, the survivor gets full ownership of the home, outside of the formal probate process.  In this situation, ownership passes from one spouse to the surviving spouse at the moment of death, with nothing more required--it is automatic. 
     But simply writing and signing the deed is not enough. There is an important step in the process, dating back hundreds of years, that is often forgotten. The Maryland Court of Special Appeals just reaffirmed the historical concept that a deed must be "delivered" in order to effectively transfer title to real property. Without this final step, absolutely no transfer of ownership is accomplished.

     In Daniels v. Daniels, the intermediate appellate court relied on this ancient concept to pull  title to a home away from a surviving wife so that it would be included in the estate of her dead husband. It held that the ownership interest was not "delivered" because the deed remained for six years in a filing cabinet in the couples home. Because the husband who wrote the deed to transfer an interest to his wife had access to the deed, and because he could have destroyed the deed at any time, the court ruled that the deed had not been delivered. The wife knew about the deed, and both understood that the document made them joint owners, but the trial court and appellate courts  both concluded that this simply was not enough.  A fully executed deed that is accepted by the other party is just not enough to transfer ownership unless it is "delivered." And that means giving up any right to get the deed back, or to destroy the deed.
            The method for delivery of ownership has changed a bit since the days of old. Hundreds of years ago, ownership of land was officially delivered through a ceremony often called the “Liveryof Seisin.” In this ceremony the person giving the land would present he person receiving the land with a clump of earth from the property being transferred.
           As is described in this court decision, delivery is now complete when the person who is giving the land no longer has any control over the deed. He must not only surrender physical possession of the actual land, but he must have no right to recall the deed giving legal title to the land-- the deal must be final. While this seems simple, it has gotten people into trouble just like Mr. Daniels.
     Mr. Daniels clearly intended that his wife of over forty years would inherit full ownership of their home. And the trial court even acknowledged this fact. But because he did not take the advice of others to record the deed and because he chose to keep it in a filing cabinet with the couple's important papers, his wife was denied full ownership. Instead, Mr. Daniels daughter was able to use the lack of formal delivery to defeat his intent and force the home into probate, where the daughter would inherit partial ownership.
     Unfortunately, property ownership and inheritance is too often the ultimate family battle ground. We can only guess at the daughter's motivation for wresting the house away from mom.
      So how can you make sure that you have properly delivered a deed? The best method of delivery is to record a deed in the Land Records. Once a deed has been recorded in the county land records, it becomes a matter of public record and it can’t be taken back. Mr. Daniels might have saved his wife lots of trouble, and he might have prevented a big family squabble if he had taken the advice of his professionals to simply record the deed.