C O A L I T I O N C O R N E R Coalition Corner: Business training tools for HR staff, real estate licensees and other service professionals in the relocation and real estate industries Transferees in Bankruptcy The Worldwide ERC ® Coalition thanks Beatrice Galindo, Chicago Title Insurance Company, and Marjorie Ramseyer Bardwell, Fidelity National Title Group for this edition. © 2008, Worldwide ERC ® Coalition

C O A L I T I O N C O R N E R Program objectives This program supplements an editorial feature in Worldwide ERC ® ’s Mobility magazine This segment will: –Introduce users to some of the basic types of bankruptcy –Consider some of the basic implications of bankruptcy to relocating employees and those working with them

C O A L I T I O N C O R N E R Some Bankruptcy Facts Economic, housing market and mortgage industry challenges leading to a greater potential for transferring employees to currently be in or considering bankruptcy In the U.S., bankruptcy is addressed in Article 1, Section 8, Clause 4 of U.S. Constitution and falls under federal jurisdiction Cases filed in U.S. Bankruptcy Court (adjunct to U.S. District Courts) Complication: Cases are highly dependent on state law, especially as related to validity of claims and exemptions Given variety of state laws, rules and interpretations (and individual circumstances in each case), bankruptcy is a complex legal matter, and very difficult to generalize

C O A L I T I O N C O R N E R There are six types or chapters of bankruptcy under the Bankruptcy Code Most common types of personal bankruptcy for individuals are Chapter 7 and Chapter 13 Bankruptcy Facts

C O A L I T I O N C O R N E R Debtor surrenders his/her non-exempt property to bankruptcy trustee Property is liquidated and proceeds distributed to debtor’s unsecured creditors In exchange, debtor is entitled to discharge of some debt…but There are certain conditions under which/certain types of debts not discharged Amount of property debtor may exempt varies state to state May only be filed once in any 8-year period Generally, rights of secured creditors to collateral continue even though debt is discharged *Source: Chapter 7 Bankruptcy

C O A L I T I O N C O R N E R Chapter 13 Bankruptcy Known as an individual’s debtor’s adjustment, or wage earner’s plan Debtor generally retains ownership and possession of all of her/her assets Debtor must devote some portion of future income to repaying creditors, generally over 3-5-year period Amount of payment/repayment period depends on variety of factors, including value of total property and amount of income and expenses Secured creditors may be entitled to greater payment than unsecured creditors *Source:

C O A L I T I O N C O R N E R Key Challenges for Relocation Professionals Uncovering the fact that bankruptcy filing has occurred –Not necessarily easy to discover during the title search process, especially in cases where property is located in county other than where the U.S. District Bankruptcy court sits –Suggestions include listening carefully for clues during meetings/conversations, and ensuring seller’s affidavit contains a statement that no bankruptcy has been filed or contemplated

C O A L I T I O N C O R N E R Other Information Relocation Professionals Should Know Debtor files bankruptcy –Whether one spouse/co-owner or both file bankruptcy, title to all property vests in the trustee of bankruptcy for the benefit of the creditors (the estate)

C O A L I T I O N C O R N E R Other Information Relocation Professionals Should Know Bankruptcy filed before cash out –If bankruptcy is filed before the cash out, the home is no longer the property of the transferee; it becomes the property of the estate –Transferee cannot effectively sign the deed; any cash out would normally go to estate –If transferee signs the deed, the trustee may be able to get the property back from the grantee or escrowee Bankruptcy filed after cash out, before recording –If bankruptcy is filed after the cash out, but before the recording, trustee takes title and can ignore any equitable interests or recorded deeds –Trustees’ title may be superior to the unrecorded deeds held by the escrowee.

C O A L I T I O N C O R N E R Other Information Relocation Professionals Should Know In Chapter 7: –deed must come from the trustee of the estate –title company would pay any proceeds to the trustee for the distribution of payment to creditors In Chapter 13: –court order allows the sale and directs the debtor to sign the deed –title company would have to get authorization to close the transaction –court order would usually direct title company to tender the funds directly to the court

C O A L I T I O N C O R N E R In Conclusion… Bankruptcy Code is complex Because of dependency on state laws, individual circumstances and varying chapters, it is difficult to speak in general terms about bankruptcy Relocation professionals are strongly encouraged to consult with experienced counsel regarding bankruptcy situations