I co-own a house in WA as rental property with a friend with no mortgages. The title is clear under both of our names, and my proportion is 21%. Now all my friend’s houses in CA went into foreclosure. (She hasn't filed bankruptcy yet) We didn't form any business entity, but she agrees to write a partnership agreement, and she wants to transfer her title under someone else's name in order to protect our house. Would the creditor still be able to claim the house even if it is paid already? If so, how would this affect our co-ownership? How can I protect my asset? What needs be included in our contract? Would it be any different if I am an alien?
Your percentage ownership is yours even if someone that you co-own property with files bankruptcy. Unfortunately any transfer like the one you describe that takes place in the 10 years before one of your partners files bankruptcy would be considered a fradulent transfer and would be oidable by the bankruptcy Trustee. If a partner files a 13 they have to repay the equity they have to keep the house to their creditors. In a chapter 7 the trustee can take the house, sell it and pay you back your 21%.
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While I appreciate the fact that your friend may wish to protect you from consequences of her Bankruptcy, the strategy she is considering will not accomplish the results you both desire and will make matters far worse!
For more information, I recommend my short video called "5 Things Never to do Before You File Bankruptcy." Just click my photo to get to my profile & go to the section called Legal Guide to watch this important information.
What your friend is considering is called a "prefential transfer" - turning over property to someone to avoid listing it in a bankruptcy. While it can seem like a savy strategy, it crosses the line & is in fact, a criminal act.
Perhaps its time for your friend to consult with a friendly bankruptcy attorney in person to help her. We can suggest strategies to deal with the issues in her case that are savy & legal.
And you don't have to be up at 3 am worrying about them!
Hope this helps!