What Are The Pitfalls To Have A Friend Or Relative – Even Stranger Hold Title To Your Property In Their Names On Your Behalf?
Posted by: Kenny Tan
August 28, 2011
Topic: Holding Title
Ordinarily people just don't do this unless they have a specific purpose in mind. Sometimes it's done to avoid holding assets in their names to protect these assets against past or future creditors, sometimes to obtain mortgage loans that they could not qualify for because they have bad credit. Sometimes parents purchase properties in the kids' names for estate planning purposes There's a gamut of reasons why people do this; good or bad, proper or improper, legal or illegal.
Whatever their reasons may be, there are definitely some risks involved with letting someone else hold title to your own property, no matter how much you think you can trust this person. Sometimes even a close family member cannot be trusted to honor your arrangement with them.
Here is an example of how things can go wrong for you.
Putting Title To Your Property In A Married Man's Name - What Happens When The Wife Files For Divorce
You've found a house that you like but want to purchase it. Your credit's bad and you need a loan to make the purchase. So you ask a friend with excellent credit score to help you purchase it and obtain a loan in his name. You got the loan and the escrow closed. You've paid the property taxes, insurance, mortgage; sometimes you'd write checks to your friends so he would pay on your behalf, sometimes your friend would bring you the bills and you pay them yourself.
For a while this arrangement worked fine without a problem.
There's just a little detail that you didn't consider when you decided to do this: The fact that your friend is married. A few years later his wife filed for divorce and found this property under this name and claims it as community property. The title to the property gets litigated in the family law court.
Now suddenly you regret not asking your friend to quitclaim it back to you soon enough.
When you go to family court to quiet title to the property to yourself, you have a lot explaining to the court why you're entitled to have title to the property. In case you don't know, the burden of proof for quiet title is by clear and convincing evidence. The theory for your quiet title is resulting trust which means your friend is holding it in trust for you.
But quiet title is an equitable claim which means your friend's estranged wife may be able to assert "unclean hands" as a defense against you. You can't come to equity court with "dirty hands". In this case, the dirty hands are the result of fraud on the lender. The family law judge tends to protect the spouse.
Being in that situation, you can only be saved if you're able to produce clear and convincing proof that you supplied the down payment to get the house. If you had paid cash and can't come up with such proof, you may be in jeopardy of losing your investment.
Still. You're looking for equitable relief in a family law court. The trial court has wide discretion in deciding whether to give you the title.
Even if you get lucky and are able to get your title back, you would have spent tens of thousands of dollars in lawyers' fees and costs. The bottom line is that it's possible to get title back but it may be difficult and expensive.
So the next time you consider doing something like this, you might want to get some legal advice first!
