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Real Estate and Unintended Ownership

I spent the morning doing research and came across an interesting case regarding ownership of real estate. Too often people place other’s on title for convenience and later discover this trusted person should not be trusted. A common example I see is “loaned” credit. Between 2004 and 2008, loans became easier and easier to obtain as long as you had a decent credit score. People with mediocre or poor credit would purchase homes using the “name” of their friends. In these instances, the friend is placed on title.

Fast-forward a decade later, and many of these arrangements have not been cleaned up. In fact, some clients even forgot the arrangement and don’t know their title. The problem arises when the “friend” or someone acting on their behalf assert ownership. Is there a remedy?

The answer is yes if you can prove the arrangement by clear and convincing evidence that the “friend” was simply helping the true buyer. The legal remedy is called a “resulting trust” because the “friend” is owner of the property in trust for the benefit of the true purchaser. The following cases illustrate some unique issues when ownership arrangements are not clear.

In one case, the owners of a residence gave title to their home to their son to help the son secure a business loan. The parents die, and now the other children want their share of the house. A legal battle brakes out between the children as to who should own the property. The trial court find that that the transfer to the son was not a gift and the house was mom and dad’s house with the son holding title in a “resulting trust.” The appellate court reverses and holds the house is in fact the son’s house. This family would have benefited from a lot of heart ache had the parent’s imply clarified the relationship at the onset – gift or no gift.

In another case, husband purchases property, takes care of all the property necessities, but puts title in his wife’s name. The wife and husband then get their wills prepared and name each other as beneficiaries. The wife later changes her will without telling the husband. The question before the court was the transfer by the husband to the wife a gift. The court held that the intent was for the wife to hold the property for the benefit of the husband so a resulting trust was formed.

These cases illustrate a few important points. First, be clear about the property that you own. Be sure the name is correct and reflects reality. Too often, keeping the name of real estate in the name of one spouse while two of them are owners can raise problems. This is doubly true with children. Second, if you face a situation where title is incorrect, you may be able to remedy the situation. Better address these issues early instead of leaving unsettled matters for the future.

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