In 1988 Dad dies owning a 1/2 interest in 540 acres in two counties. He bequeathes a life estate to his wife and undivided remainder interest in the property to his six children. In 2006 one if the remainder interest holders and his wife file
a chapter 12 bankruptcy and fails to schedule his remainder interests. In 2007 the case converts to chapter 7 and the remainder interest is not listed. In, 2008 Mom dies and the remainder becomes a possessory interest. In 2011, a family settlement is reached
with the bankrupt son's wife obtaining an interest in approximately 154 acres, which is pledged as collateral for a $2.0M mortgage. In 2013, the bankrupt son's wife purchases some adjoining land from the chapter 7 bankruptcy trustee who conveys it via a court
officer's deed showing his capacity as the chapter 7 trustee. The trustee's deed is the first reference to the bankruptcy to appear in the abstract.
Farming does not go well and assets are liquidated leading to a significant income tax liability that was ultimately secured by tax liens being filed by the IRS and IDR. Later when the wife seeks to sell the 154 acres the abstractor sees the
trustee's deed and inquires whether the remainder interest was listed in the bankruptcy and reaches out for guidance.
The questions are:
1) is the mortgage valid against the property purchased by the debtor's wife in the family settlement?
2) could the bankrupt remainder holder convey good title as part of the 2011 family settlement when the remainder was not listed in the bankruptcy?
3) are the tax liens valid against the 154 acres acquired by the wife?
4) what needs to be done to convey clear title to the 154 acres that the wife seeks to sell?
My initial analysis is as follows:
1) the mortgage is good as there was no notice of filing bankruptcy filed in either county where the land is located. Thus, there is no reference in the abstract to the bankruptcy to alert the person issuing the title opinion that the debtor
land owner does not own the remainder interests that have become possessory due to his mother's passing and are, in reality, property of the bankruptcy estate.
2) that since the failure to disclose the remainder was not discovered until 2017, 6 years after the family settlement, the bankruptcy trustee cannot upset the transfers to BFPs. While the transfers by the bankrupt remainder holder could be
set aside by the trustee, an action to do so must be undertaken within two years of the transfer. Therefore, the transfers to the other family members should be safe.
2) given the passage of time, the title transferred by the bankrupt remainder holder to his other family members is now good as the trustee did not seek to set aside the transfers within two years. Had the trustee been made aware of the remainder
interests in a timely fashion, he could have sought to set aside the transfers against the BFPs.
3) the tax liens are valid for the same reasons cited in my answer to question 1, namely, lack of notice of the bankruptcy when the liens were filed.
4) the bankruptcy trustee needs to be notified of the remainder so the bankruptcy can be reopened to allow the trustee to administer the remainder interest in the 154 acres acquired by the wife of the remainder holder as she was not a BFP. Once
the remainder in the 154 acres is administered by the bankruptcy trustee, this can be shown in the abstract and title will be clear.
Have I missed anything?
Joe Peiffer
Peiffer Law Office, P.C.
Cedar Rapids, IA
Sent from my U.S.Cellular© Smartphone
------ Original message------
From: realestate@iabar.org
Date: Sun, May 7, 2017 5:25 PM
To: realestate@iabar.org;
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Subject:[ISBA RealEstate] Request for assistance