Wednesday, April 16, 2014

Does the homestead exemption protect prepaid rent?

From a debtor's perspective, Illinois' $4,000 wildcard exemption can seem woefully inadequate. Imagine receiving a $8,000 tax refund, but owing much more than that to several different creditors, all of whom have filed suit to collect their money. Those creditors may be able to take half of the tax refund. But the debtor can use other exemptions besides the wildcard to protect the excess cash from those lawsuits. Also, if the debtor is forced into bankruptcy, he can use his other exemptions to shield that excess money from the bankruptcy trustee.

There are actually several ways to exempt excess cash. The debtor can invest in a qualified retirement plan up to the applicable yearly limits proscribed by the IRS. The debtor can pay down a car loan so that he has up to $2,400 in equity in the car. The debtor can purchase a whole life insurance policy naming his spouse or children as beneficiary. The debtor can also prepay a mortgage and exempt up to $15,000 in equity in his homestead. 

But what if the debtor cannot afford to invest in a retirement account, or may have already invested the maximum? Assume that he does not own real estate. Can he send his landlord all of his excess cash and then use the homestead exemption to protect that equity? I think so. Here is the Illinois Homestead Exemption statute:
Every individual is entitled to an estate of homestead to the extent in value of $15,000 of his or her interest in a farm or lot of land and buildings thereon, a condominium, or personal property, owned or rightly possessed by lease or otherwise and occupied by him or her as a residence, or in a cooperative that owns property that the individual uses as a residence. That homestead and all right in and title to that homestead is exempt from attachment, judgment, levy, or judgment sale for the payment of his or her debts or other purposes and from the laws of conveyance, descent, and legacy, except as provided in this Code or in Section 20-6 of the Probate Act of 1975 [755 ILCS 5/20-6]. This Section is not applicable between joint tenants or tenants in common but it is applicable as to any creditors of those persons. If 2 or more individuals own property that is exempt as a homestead, the value of the exemption of each individual may not exceed his or her proportionate share of $ 30,000 based upon percentage of ownership. 735 ILCS 5/12-901.
I always thought you had to own real estate to claim a homestead exemption, but after actually reading the statute (novel concept huh?) it appears that a debtor can exempt up to the $15,000 of his interest in a lot of land and buildings thereon "rightly possessed by lease or otherwise" and occupied by him or her as a residence. The annotations do not provide any support for this concept, but it appears that the language of the statute is clear.

Of course, savvy creditors' counsel will claim that any attempt to prepay rent to avoid an obligation to a creditor is a fraudulent transfer. But there is plenty of federal case law that supports "exemption planning" on the eve of a bankruptcy filing. Those cases are easily analogized for purposes of state court litigation. 

For instance, the Seventh Circuit has held that conversions of assets from non-exempt to exempt forms within the year preceding a bankruptcy filing are not necessarily fraudulent to creditors. In re Smiley, 864 F.2d 562, 566 (7th Cir. 1989). Also, the U.S. Bankruptcy Court for the Western District of Wisconsin, in a very thorough opinion dealing with exemption planning, looked specifically at the amount of money at stake, among other things, to determine whether claimed exemptions should be upheld. See In re Bronk, 44 B.R. 902 (W.D. Wisc. 2011). That court noted that when deciding on whether to uphold claimed exemptions, the temptation is to place considerable weight on the amount of money a debtor hopes to shield from creditors. This sentiment, the court noted, manifests itself in a variety of characterizations, such as a "smell test" or the age-old adage that "pigs get fat and hogs get slaughtered." The court went on to reject any notion that the size of the claimed exemption was itself indicative of fraud. The court very clearly held that a debtor should not be prohibited from the full use of his exemptions. The court even quoted Judge Learned Hand from a different context when that judge noted that "There is nothing sinister in arranging one's affairs so as to keep taxes as low as possible." 

So, to make a long story short, there is support in the law for last-minute exemption planning on the eve of bankruptcy or trial, even when that exemption planning involves creative applications of existing law, including the prepayment of rent to a landlord. 

Friday, April 11, 2014

Landlord and Tenant Obligations

I would like to thank the folks at Sterling Education Services for inviting me to speak at today's seminar in Rockford. The seminar was titled Fundamentals of Landlord-Tenant Law, and my particular topic dealt with the obligations of landlords and tenants.

HERE is a link to the written materials that I used for my presentation. These materials have been updated slightly based on several questions that I received from the audience, so this link contains the most recent version. I have also added this link to the Forms Archive section of the Blog.  

Wednesday, April 9, 2014

Reverse Mortgages

A reverse mortgage is a type of loan available to an individual borrower who is more than 62 years of age and who has sufficient equity in his or her primary residence. A reverse mortgage allows a borrower to cash out the equity in his or her house without making any immediate payments back to the lender. The lender is not entitled to repayment until the borrower dies, the property is sold, or the house is no longer used as the borrower's primary residence. 
All of that seems very straightforward, but what actually happens after the death of the borrower? Oftentimes, children may expect to inherit their parents' real estate and they may not even know that their parents had taken reverse mortgages later in life. There are very specific rules dealing with the timelines and payoff procedures which, if not followed, can lead to a mortgage foreclosure lawsuit. Children of parents who die with reverse mortgages risk losing the family home if they are not aware of their rights.
Under federal regulations governing reverse mortgages, heirs have up to 30 days from when the loan becomes due to determine what they want to do with the property, and up to six months to arrange financing. More importantly, there is a rule that allows heirs to pay 95 percent of the current fair market value of the property for a release of the mortgage. The difference offered by the 95 percent rule can be critical. Following the financial crisis, the disparity between the current value of a home and the total balance on the mortgage can often mean the difference between keeping a home and losing it to foreclosure.
If you are dealing with a reverse mortgage lender following the death of a parent, you may wish to consult an attorney to make sure that you understand all of your options.

Sunday, March 16, 2014

A father has no legal right to be in the delivery room, a court rules.

A woman preparing to give birth has no obligation to notify the father when or where the birth will occur, a New Jersey court has ruled. And if the father does appear at the hospital, the mother can bar him from entering the delivery room. The case appears to be the first of its kind nationwide.

The case arose after a couple conceived a child, got engaged, but later called off the wedding. After the wedding was called off, they were barely on speaking terms. The father finally sued the mother and requested access to the baby at the hospital after its birth. He didn't even request to be in the delivery room.

The court specifically ruled that fathers have no established legal right to be present at the birth of their children. Going further, the court also said that the father wasn't even entitled to know at which hospital the birth would occur. 

The court first noted that he father’s presence could put undue stress on the mother and possibly harm the fetus. In this case, the mother had undergone testing for premature labor and stress. But, more importantly, the court pointed to the strong constitutional and statutory protections afforded to all medical patients, not only pregnant women. Basically, any patient can decide who he wants to have at his bedside. The fact that they were dealing with the birth of a baby had no consequence. The court ruled that any interest a father has before the child’s birth is “subordinate to the mother’s interests.” 

This seems like a tough result, but it was the only logical decision for the court after it analyzed two landmark Supreme Court cases on abortion. The court cited Roe v. Wade from 1973 and Planned Parenthood v. Casey from 1992. Both of those cases established stronger privacy rights for expectant mothers and their unborn child than their fathers. Specifically, the Casey ruled that women are not even required to tell their spouses about abortions. An abortion seems like much more of a drastic situation than a birth, so the court ruled that the same privacy rights should be extended to births as well.

Friday, March 14, 2014

Deposition Levity

I'm going through some deposition transcripts in preparation for an upcoming trial. I thought you might enjoy the following exchange:
Mr. Huseman:  Do you have an attorney in that case?
Witness:  Yes.
Mr. Huseman:  Who is it?
Witness:  Grossman.
Mr. Huseman:  Rex Grossman?
Witness:  No. Jay Cutler.
Sometimes it's the little things that get me through the Friday afternoons.

Thursday, March 13, 2014

Refresher on Bailment

I'm reading a 7th Circuit opinion concerning the bankruptcy case of a commercial livestock operation, In re Mississippi Valley Livestock, Inc. Without getting into the facts or the holding of the case, I just thought I would pass along the following succinct definition of a bailment relationship in case anybody is interested:
Under Illinois law, “bailment is ‘the delivery of goods for some purpose, upon a contract, express or implied, that after the purpose has been fulfilled [the goods] shall be redelivered to the bailor, or otherwise dealt with according to his directions, or kept till he reclaims them.’” Kirby v. Chi. City Bank &  Trust Co., 403  N.E.2d  720,  723 (Ill. App.  Ct.  1980);  see also Berglund v. Roosevelt Univ., 310 N.E.2d 773, 775 (Ill. App. Ct. 1974) (“Bailment is defined as the rightful possession  of  goods  by  one  who  is  not  an owner.”).  Although bailment takes  many  forms,  the  “characteristics common to  every bailment  are the intent to create a bailment, delivery of possession of the bailed items, and the acceptance of the items by the bailee.” Id. at 775–76.

Tuesday, February 4, 2014

Federal Defender Job Opening.

The United States Court of Appeals for the Seventh Circuit is accepting applications from all qualified applicants for the position of Federal Defender for the Central District of Illinois headquartered in Peoria.

The application deadline is February 24, 2014. HERE is a PDF with more information.

Friday, January 31, 2014

Someone didn't think this plan all the way through.

The majority of my practice involves the collection of debts in one form or other. I represent both creditors and debtors and almost every one of my cases involves somebody trying to get money from someone else.

Over the past ten years, I've seen many crazy and unbelievable things. But I've never seen anything this crazy. A woman in Russia recently underwent a sex change operation in an attempt to become a new person to get out of paying a debt.

Unfortunately, changing your gender does not make you an entirely different person and Nataly, now known as Andrian, is still liable for the original debt. HERE is a link to the article.

Thursday, January 23, 2014

Fundamentals of Landlord-Tenant Law Seminar

For those of you who are interested, I will be speaking at a landlord-tenant law seminar in Rockford on April 11, 2014.

Here is a copy of the brochure: http://store.sterlingeducation.com/pdf/1483.pdf