Can A Discharged Property Be Quit Claimed?

Hi,

I'm 91 and live in Illinois. I filed for Bankruptcy relief from medical bills in 2010. My condo was discharged in bankruptcy court however, I still live in it and pay the mortgage even though technically, I am not liable for the mortgage and can walk away at any time (or so I was told). I've chosen to stay and continue paying the mortgage because it is cheaper than renting a comparable place.

The problem is, the condo is currently worth LESS than the mortgage, so it has negative equity. I would like to move to AZ to be near my son and live in an independent living facility. My concern is that I may need assisted living within 5 years and it's my understanding that if I transfer the condo (even though it has negative value now) I will not be eligible for financial aid.

If I make it 5 years or pass away without ever needing assisted living it seems silly to walk away and let the bank foreclose, or to short sell, because my son or family member can immediately lease the unit will have a positive cash flow (which would help pay my new place in an independent facility and the mortgage would eventually be paid off and I can leave the unit to them.

So the only scenario where it would make sense to walk away is if a). I make it another 5 years in independent living, and b). Require assisted living after 5 years. I'm not sure how to calculate this risk or what my options are. Can I quit claim the property now even though it's been discharged in bankruptcy court and there is still a mortgage on the unit that I'm not liable for? If I walk away and the bank forecloses, do I have to list it as an asset I transferred within 5 years even though it had negative equity when I transferred or walked away? Maybe the simplest way to ask my question is if a property with negative value is still considered an asset?

Thank you so much if anyone can help me with an answer

LorJan35 said:

I filed for Bankruptcy relief from medical bills in 2010. My condo was discharged in bankruptcy court however, I still live in it and pay the mortgage even though technically, I am not liable for the mortgage and can walk away at any time (or so I was told).

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Your condo wasn't discharged. A person can be discharged. An item/piece of property cannot. Since we don't know any details about your bankruptcy (e.g., whether it was a Ch.7 or Ch. 13 or anything else), it's impossible for us to know exactly what the status of the property is. However, while you might no longer have any personal liability for the mortgage, it is virtually certain that, if you were to "walk away" from the mortgage, the holder of the mortgage could foreclose.

LorJan35 said:

The problem is, the condo is currently worth LESS than the mortgage, so it has negative equity. I would like to move to AZ to be near my son and live in an independent living facility. My concern is that I may need assisted living within 5 years and it's my understanding that if I transfer the condo (even though it has negative value now) I will not be eligible for financial aid.

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To whom are you envisioning transferring the condo? Who is going to pay the mortgage if you leave? Financial aid from whom?

LorJan35 said:

If I make it 5 years or pass away without ever needing assisted living it seems silly to walk away and let the bank foreclose, or to short sell, because my son or family member can immediately lease the unit will have a positive cash flow (which would help pay my new place in an independent facility and the mortgage would eventually be paid off and I can leave the unit to them.

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Not entirely sure where you're going with this. If you think you can rent out the property for more than the combined mortgage, property tax and insurance payments (as well as the cost of maintenance and property management), then yes, you can achieve a positive cash flow.

LorJan35 said:

Can I quit claim the property now even though it's been discharged in bankruptcy court and there is still a mortgage on the unit that I'm not liable for?

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That you went through bankruptcy is of no relevance as long you still own the property. If you own it, you can transfer it via quitclaim or any other kind of deed. Why you'd want to do that isn't readily apparent. Also, it's possible that a transfer of title would trigger a default under the mortgage.

LorJan35 said:

If I walk away and the bank forecloses, do I have to list it as an asset I transferred within 5 years even though it had negative equity when I transferred or walked away?

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List it on what?

LorJan35 said:

Maybe the simplest way to ask my question is if a property with negative value is still considered an asset?

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There is no sensible definition of "asset" that would define a piece of property as not an "asset" just because it has negative equity.

I'm not really sure what result you're looking to achieve, but I strongly suggest you consult with a local attorney before doing anything.

Yes, you can quitclaim the condo to whoever.

But even if payments continue to get made you'll have to carefully read the due on sale clause to see if such a transfer activates it. Also look for the part of the mortgage contract that might say that the mortgage company is entitled to any rents generated by the property.

The debt may have been discharged but the terms and conditions of the contract haven't been discharged.

Continuing to pay a debt DISCHARGED in bankruptcy could lead to one of three things:

Nothing, no one cares

Something, because the debt might have been REAFFIRMED

A fraud upon the court if the court didn't approve the REAFFIRMATION

I believe you are concerned over qualifying for AZ Long Term Care System (ALTCS) aid. The following may be of assistance:

Arizona Long Term Care System (ALTCS) Member Handbook | Arizona Department of Economic Security

I would recommend that you find an Arizona attorney who handles elder law. Please note that qualifying for this state run Medicaid program often requires a bit of planning. One must fall under a specific income limit AND have a limited amount of liquid assets. Since you are upside down with the condo, transferring it may not be necessary and may, in fact, be the wrong thing to do.

If my assumption relative to your interest in ALTCS is correct this is a very complicated issue. I know this from personal experience. Attempting to secure information off the Internet is a mistake. Start looking for a qualified attorney, If your son is in Arizona he can do the leg work.

Des.

despritfreya said:

Start looking for a qualified attorney, If your son is in Arizona he can do the leg work.

Des.

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Happy to see you chime in with your vast expertise, Des.

I trust this response finds you healthy.

Happy Thanksgiving...

despritfreya said:

I believe you are concerned over qualifying for AZ Long Term Care System (ALTCS) aid. The following may be of assistance:

Arizona Long Term Care System (ALTCS) Member Handbook | Arizona Department of Economic Security

I would recommend that you find an Arizona attorney who handles elder law. Please note that qualifying for this state run Medicaid program often requires a bit of planning. One must fall under a specific income limit AND have a limited amount of liquid assets. Since you are upside down with the condo, transferring it may not be necessary and may, in fact, be the wrong thing to do.

If my assumption relative to your interest in ALTCS is correct this is a very complicated issue. I know this from personal experience. Attempting to secure information off the Internet is a mistake. Start looking for a qualified attorney, If your son is in Arizona he can do the leg work.

Des.

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Thank you all so much for your replies. Despretfeya you are correct. I am concerned about qualifying for ALTCS. My son has talked to an attorney and she told him that an asset can not be in my name for 5 years and my income must be below $2000 per month. I meet the income qualification, but this darn condo is what's causing so much concern. Even this attorney who specializes in elderly planning couldn't answer his questions about a condo that has been discharged in bankruptcy court. It was chapter 7 by the way.

My son is already paying so much money to move me down there to be closer to him and I can't afford a good attorney and don't know of one if I could. My son suggested to just stop making mortgage payments and walk away. That way he said I save some money for myself until I move. It's his understanding that the bank would eventually foreclose on the property but I'd already be living in the place he's set up for me in Arizona by then. His main concern after talking with his attorney is that ALTCS will still require me to list the condo as an asset if I require assisted living within the next 5 years and they will reject my application even though there was no equity when I walked away.

As to what I'd be trying to accomplish by quit claiming the deed to him is that I'd like to leave him or my grand kids something when I go. He could easily rent it out for more than the mortgage costs and taxes. The extra would go to me for now. When I eventually go, the mortgage gets paid off in 17 years and someone at least gets to own it. But his concern is that by not walking away and letting the bank foreclose or doing a short sale, it will mess everything up if I need to apply for ALTCS. But I'm saying what if I'm lucky enough to go like my mother did and pass away suddenly without ever needing ALTCS? I'd like him or my grand kids to own it one say. It's such a mess! I'm leaning towards listening to my son and just walking away but someone suggested I ask my question here first. Thank you all again!

P.S. Looking over the mortgage to see exactly how it's worded is a great idea! I'll need to have my son look at it.

LorJan35 said:

I am concerned about qualifying for ALTCS. My son has talked to an attorney and she told him that an asset can not be in my name for 5 years and my income must be below $2000 per month. I meet the income qualification, but this darn condo is what's causing so much concern. Even this attorney who specializes in elderly planning couldn't answer his questions about a condo that has been discharged in bankruptcy court. It was chapter 7 by the way. My son is already paying so much money to move me down there to be closer to him and I can't afford a good attorney and don't know of one if I could.

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There is planning you can do. It was not something I looked into with my parents since they would never have qualified for ALTCS, but I know it exists. I want to suggest that you consult with the attorney my brother and I used (we had to file for guardianship of mom after dad passed).

I don't know if doing this breaks the forum rules. If it does I understand if a moderator removes the referral. The law firm is Jackson White located in Mesa. Google the Firm name for the web site. The specific attorney my brother and I used was Susan Court but that was for a guardianship. It might be a different attorney for the ALTCS issue. The phone number is 480-464-1111. My brother and I were very satisfied with the advice and assistance we got and while the Firm is a bit pricey, it might be a good idea to at least have one consultation.

Best of luck.

Des.