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Can debtors force sale of house in trust?

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danknel

Junior Member
What is the name of your state (only U.S. law)? Utah

I tried to search the forums for the answer, but couldn't find anything in which the house is in a trust, so here is my question. My father just passed away with about $25,000 in credit card debt and about the same in medical bills. He had a living trust setup and recently quitdeeded his house to the trust. There are no other assets in the trust besides about $2000 in household items (furniture, computer, etc.). The house is worth about $300,000 but still has a $180,000 mortgage. My sister is still living in the house, and I am wondering if I need to sell the house to pay his debts. We are not going through probate because the only other asset he has that is not in the trust is a checking account with $400 in it. If I do not have to sell the house, what do I do about the debts?What is the name of your state (only U.S. law)?
 


danknel

Junior Member
I understand that if the house were titled in my father's name, it would be part of his estate that would need to go through probate and the creditors would file claims. The reason I am unsure in this situation is because the house is titled in the trust's name.
 

HomeGuru

Senior Member
But the trust was owned by the deceased. The money is still owed.
**A: more importantly the real property was deeded to the trust recently and creditors may be able to argue that the deed transfer was fraudulent with the intention to evade creditors in the amount of $50K.
 

tranquility

Senior Member
There does not need to be an argument here. The creditors get the money. If any have any significant amount due them, they will get it.
 

anteater

Senior Member
There does not need to be an argument here.
Particularly since, given the normal usage, the "living trust" was almost certainly revocable and the Utah Trust Code states:
75-7-505. Creditor's claim against settlor.
(1) Whether or not the terms of a trust contain a spendthrift provision, the following rules apply:
....
(c) After the death of a settlor, and subject to the settlor's right to direct the source from which liabilities will be paid, the property of a trust that was revocable at the settlor's death, but not property received by the trust as a result of the death of the settlor which is otherwise exempt from the claims of the settlor's creditors, is subject to claims of the settlor's creditors, costs of administration of the settlor's estate, the expenses of the settlor's funeral and disposal of remains, and statutory allowances to a surviving spouse and children to the extent the settlor's probate estate is inadequate to satisfy those claims, costs, expenses, and allowances.
...
 

danknel

Junior Member
Thank you for all the feedback.

**A: more importantly the real property was deeded to the trust recently and creditors may be able to argue that the deed transfer was fraudulent with the intention to evade creditors in the amount of $50K.
The quitdeed, although submitted recently, was just a follow-through from when the trust was created in 1998. I met with the lawyer who originally helped my father create the trust and his notes showed that my father had intended to deed the house to the trust back then.

Regardless, I am not trying to get out of the debt, just wondering what the laws are and how I am supposed to pay the creditors. I am just unsure of the steps to take, i.e. sell the house, get a second mortgage, etc., and if I may have any room to negotiate with these creditors, and if this all needs to be done through the probate process.
 

curb1

Senior Member
1) Options are to sell the house, or get a second mortgage.

2) No it doesn't have to happen through the probate process.

3) Who is the trustee of the trust?

4) Why would you want "room to negotiate with these creditors"? Just pay them.
 

FlyingRon

Senior Member
Thank you for all the feedback.
The quitdeed, although submitted recently, was just a follow-through from when the trust was created in 1998. I met with the lawyer who originally helped my father create the trust and his notes showed that my father had intended to deed the house to the trust back then.
When he made the trust and his intent matters not. It's when the actual deed was executed.
Regardless, I am not trying to get out of the debt, just wondering what the laws are and how I am supposed to pay the creditors. I am just unsure of the steps to take, i.e. sell the house, get a second mortgage, etc., and if I may have any room to negotiate with these creditors, and if this all needs to be done through the probate process.
As trustee you've got likely got pretty wide authority to figure out how to come up with the funds. What makes the most sense isn't a legal issue but a financial one and even if were inclined to answer, we'd need to know what the general situation of the heirs/beneficiaries to venture a guess.

You can always negotiate, but if there are sufficient assets, you're likely not getting much compromise out of the creditors.
 

nextwife

Senior Member
**A: more importantly the real property was deeded to the trust recently and creditors may be able to argue that the deed transfer was fraudulent with the intention to evade creditors in the amount of $50K.
I agree. While it may be stated that the INTENT had been to convey the real estate when the trust was created, any debt granted subsequently might not have even been granted if dad did not have that asset. The creditors need to be paid.
 

danknel

Junior Member
3) Who is the trustee of the trust?
I am the trustee and a beneficiary
4) Why would you want "room to negotiate with these creditors"? Just pay them.
I would like to negotiate with them because it may take some time to come up with the money to pay them since the house is the only asset. As suggested, I will need to try to sell it (his neighborhood is flooded with foreclosures and houses are not selling with so much inventory on the market) or get a second mortgage.
we'd need to know what the general situation of the heirs/beneficiaries to venture a guess.
There are four heirs/beneficiaries (myself and three siblings). My sister, as mentioned, currently lives in the house and would like to stay there until her children are out of grade school (another 4 years). The rest of us are not interested in owning the house.
You can always negotiate, but if there are sufficient assets, you're likely not getting much compromise out of the creditors.
The house is the only asset (aside from the $2000 in household items that could be sold at a garage sale).

I think it looks like I may have to try the second mortgage option. One last legal question, can the debtors continue to charge interest and/or put a lien on the house while I come up with the funds, or is this something I may have to try to negotiate with them?
 

curb1

Senior Member
You asked, " One last legal question, can the debtors continue to charge interest and/or put a lien on the house while I come up with the funds, or is this something I may have to try to negotiate with them?".

1) Yes, interest continues, as it should.

2) Yes, they can try to put a lien on the house.

3) You can always "try to negotiate with them". They just want the debts paid.

Questions:

1) Who is paying the mortgage at this time?

2) Can the sister buy the house? Can beneficiaries buy the house? There is $120, 000 in equity in the house and only $50,000 in debts. That leaves $70,000 after all debts are paid. This should easily be a workable situation. It seems as though there is a desire to keep the house and not pay the debts. Is that an incorrect assumption?

3) What has the mortgage company said about refinancing the house? Interest rates are close to historic lows, so there has never been a better time to refinance.
 

danknel

Junior Member
1) Who is paying the mortgage at this time?
My father just passed away 2 weeks ago, the mortgage is not due for another week, so no one has paid it yet, but my sister will be paying it while she continues to live there.
2) Can the sister buy the house? Can beneficiaries buy the house? There is $120, 000 in equity in the house and only $50,000 in debts. That leaves $70,000 after all debts are paid. This should easily be a workable situation. It seems as though there is a desire to keep the house and not pay the debts. Is that an incorrect assumption?
My sister is not in a position to buy the house due to her credit. Yes, some of the beneficiaries are capable of buying the house, but would prefer not to. You are correct in assuming that there is a desire to keep the house, as I stated before to help my sister continue to live there, however we are in no way trying not to pay the debts. I am an honest person and am just trying to determine if the debtors are going to force us out of this house or if there is a way to work with them so they can get their money, as I agree they should, and we can keep the house for a few more years. As a compassionate business owner myself, I have negotiated with numerous customers to come to mutually beneficial agreements. I understand my situation is different as my company is not a multi-billion dollar corporation, but I still have faith in the goodness of others to work together. As I said, it looks like the second mortgage is probably the option.
3) What has the mortgage company said about refinancing the house? Interest rates are close to historic lows, so there has never been a better time to refinance.
We haven't had the chance to speak with them yet.
 

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