ADVERSE POSSESSION

What is adverse possession? Adverse possession is an actual and visible taking of real property, under a claim of right, that is continuing and uninterrupted, which is inconsistent with and hostile to the claim of another person.[1]

Adverse possession laws are intended to prevent land from going to waste and to promote the use and maintenance of land. To adversely possess land a person must claim the land without a true owner’s permission; actually occupy the land and use it as if it belonged to the person; the ownership cannot be sneaky, it must be blatant and obvious; and it must continue for the required period of time.

The “possession must be of such character as to indicate unmistakably an assertion of a claim of exclusive ownership in the occupant.” Hardaway v. Nixon, 544 S.W.3d 402 (Tex.App—San Antonio 2017, pet. pending).[2]

Further, in order “to establish a claim for adverse possession, a claimant must prove: (1) actual possession of the disputed property, (2) that is open and notorious, (3) peaceable, (4) under a claim of right; (5) that is consistently and continuously adverse or hostile to the claim of another person for the duration of the relevant statutory period. Estrada v. Cheshire, 470 S.W.3d 109, 123 (Tex. App.—Houston [1st Dist.] 2015, pet. denied).[3]

It is not enough to be merely caring for property, or even paying the taxes on it, until the owner reappears. One can pay taxes on someone else’s property for years, but if the other requirements of a lawful adverse possession claim are not met, then those payments are no more than a gift to the owner.[4]

Without the required intent to possess the property openly and obviously against the ownership rights of all others, the property is not adversely possessed. The adverse possessor must take intentional action of ownership as to the property and the record owner must be “sleeping on his/her/its” rights of ownership. In other words, failing to assert the right of ownership timely.

Adverse possession can apply to more than moving onto a piece of unattended property and claiming it. If a neighbor places a fence on the neighbor’s property, without the neighbor’s permission, without consent, then after the required period of time, the neighbor placing the fence could come to own that part of the property through adverse possession.

If someone were to give or even deed a piece of property or a house to another person, but that person did not have the required possessory right to give the property and the record owner does not come forward to declare ownership or “sleeps on his/her rights,” then after the required period of time the recipient of the property could come to possess the property through adverse possession. However, there is one major problem with adverse possession. When an adverse possessor gets ready to sell the property, he/she may need to have a court of law declare that ownership of the property. Adverse possession can be declared through a declaratory judgment action.

An Affidavit claiming adverse possession could give notice to potential purchasers of a piece of property claimed by adverse possession of the claim. A squatter’s affidavit is not the same as an affidavit claiming adverse possession. The Affidavit claiming adverse possession must be in the proper form for recording with the County Clerk’s office in the official or real property records of the County. The property being claimed must be described with reasonable certainty with a proper legal description (lot and block or metes and bounds). A survey may be needed to obtain a legal description. At the point of the claim of adverse possession, if an affidavit is filed with the County Clerk, it could give the adverse possessor a stronger case for possession.

There are various statutory periods that must pass for land to be adversely possessed. The periods vary based on various conditions, including whether or not a person received a deed for the property. This is called an adverse possession under color of title.

It is important to seek out the assistance of an attorney to resolve real property issues promptly. The passage of time can impact your rights. The information provided in this editorial does not, and is not intended to, constitute legal advice; instead, all information and content is provided for general informational purposes only.

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[1] Tex. Civ. Prac. & Rem Code 16.00

[2] Willis, David J., J.D., LL.M., Adverse Possession in Texas; https://lonestarlandlaw.com/adverse-possession-in-texas/

[3] Id.

[4] Id.

© Deirdre Kelly Trotter, J.D.

REVERSE MORTGAGES: GOOD OR BAD?

People who have retired from paying work sometimes look to reverse mortgages to help make ends meet. Reverse mortgages can be a godsend to people living on a fixed income. However, people considering a reverse mortgage need to go in with their eyes wide open, no matter how much we like the person advertising reverse mortgages.

First, what is a reverse mortgage? Black’s Law Dictionary describes a reverse mortgage as “a mortgage in which the lender disburses money over a long period to provide regular income to the borrower, and in which the loan is repaid in a lump sum when the borrower dies or when the property is sold.”[1]

A reverse mortgage allows the borrower to receive income from the equity the borrower has built up in their home. A home is a major investment. Much of a person’s income over his/her lifetime has been poured into the home. A reverse mortgage is exactly what it says, instead of you paying the lender, the lender pays you. Then the amount paid out to you is deducted from the proceeds from the sale of the home. If anything is leftover that amount is paid to you or to your estate/heirs.

Reverse mortgages are a specialty product and only certain lenders offer them.[2] All but the “lump-sum reverse mortgage” (meaning the amount of the loan is paid in one lump sum, and not paid over a period of time) have variable rates of interest.[3] The amount you can receive from a reverse mortgage depends on the lender and the repayment plan and is based on the youngest borrower’s age. The older the borrower the higher the loan proceeds. The higher your property value the more you can borrow.[4]

To qualify for a reverse mortgage, you must be at least 62 years old, and the home must be your principal residence.[5] The interest rate on a reverse mortgage is usually slightly higher than a traditional mortgage. Interest accumulates as with other loans. The loan will come due when the borrower dies, moves permanently from the home (defined as being out of the home for more than a year), or sells the home.[6] If the borrower moves into a nursing home, expecting to return to the home, but is not able to do so, and lives more than a year in the nursing home, then the home will need to be sold to pay off the reverse mortgage.

However, be careful of selling off the home when the person goes into a nursing home because if there is income to the borrower, then that income may affect the borrower’s ability to obtain or retain Medicaid benefits. Typically, a house is exempt from qualification for Medicaid. However, the income from the sale of the house is not exempt. It is important to contact an attorney or advisor before selling a home with a reverse mortgage if the borrower has moved into a nursing home.

Federally backed loans currently guarantee that if the loan balance exceeds the sale price of the home, only 95% of the appraised value is due on the loan.[7] In other words, if the loan amount exceeds 95% of the home’s value when it is sold, the balance remaining above that 95% is waived. NOTE: this is on federally backed loans.

A rough estimate of the equity you can get from a reverse mortgage is 58%. The borrower has to cover closing costs, which can be as high was 5% of the home’s value. There may also be other fees, such as reverse mortgage insurance and other fees. Be sure you know the total cost of all fees associated with the reverse mortgage before you commit to a reverse mortgage. For example, if your home is worth $100,000.00, you may receive approximately $58,000.00, but costs associated with the loan may reduce that amount or increase the amount owed. Reverse mortgage proceeds are not taxable as income.[8]

As with all things, watch for reverse mortgage scams.

Risks associated with reverse mortgages:

• If spouses live in the home, both should be borrowers. If only one spouse is the borrower, if that person dies or moves for more than a year, for example to a nursing home, then the non-borrower spouse would have to “repay” the loan.[9]
• A significant amount of the equity in the home will be spent on interest and loan fees.[10]
• A home with a reverse mortgage will likely not be passed to heirs.
• A borrower might outlive the income provided by the loan.[11]
• A reverse mortgage can be foreclosed if the borrower fails to meet the conditions of the loan, such as maintaining the home in good repair, payment of property taxes, and maintaining homeowner’s insurance.[12]

There are many things to consider before you commit to a reverse mortgage. Reverse mortgages may be sold once they have gone uncollected for a period of time, like other debt. In addition, HUD representatives, such as NOVAD out of Oklahoma City, are very difficult to communicate with and the process for getting a reverse mortgage resolved after the borrower dies can be agonizing for heirs and executors left behind to deal with the repayment or foreclosure of the reverse mortgage. Just do a quick search for NOVAD reviews on the Internet. The Better Business Bureau website has multiple one-star reviews. In addition, I speak from experience. I also understand that there are dozens of homes in Lubbock County that sit dilapidating because of the failure of HUD servicers to efficiently effect the transfer of these homes once the borrower dies.

While reverse mortgages can be a helping hand when needed. It is important to obtain complete information from the reverse mortgage company first and then to seek guidance from an independent and qualified person before moving forward with a reverse mortgage.

The information provided in this editorial does not, and is not intended to, constitute legal advice; instead, all information and content is provided for general informational purposes only. 

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[1] Black’s Law Dictionary, 2010, pg. 1165.

[2] Fontinelle, Amy. 2/14/2020. Investopedia. Reverse Mortgage. https://www.investopedia.com/mortgage/reverse-mortgage/

[3] Id.

[4] Id.

[5] Waggoner, John. 10/29/2019. What to Know About Reverse Mortgages? https://www.aarp.org/money/credit-loans-debt/info-2019/reverse-mortgage-loan-advice.html

[6] Fontinelle, Amy. 2/14/2020. Investopedia. Reverse Mortgage. https://www.investopedia.com/mortgage/reverse-mortgage/

[7] Waggoner, John. 10/29/2019. What to Know About Reverse Mortgages? https://www.aarp.org/money/credit-loans-debt/info-2019/reverse-mortgage-loan-advice.html

[8] Fontinelle, Amy. 2/14/2020. Investopedia. Reverse Mortgage. https://www.investopedia.com/mortgage/reverse-mortgage/

[9] Id.

[10] Id.

[11] Id.

[12] Id.

Copyright 2020 – Deirdre Kelly Trotter, J.D.

TRANSFERRING PROPERTY AT OR NEAR RETIREMENT AGE

I have received several calls lately requesting that a home owned by a parent or parents be transferred into a child’s name. My thoughts and questions when I receive this type of call are:

1. How old is the parent/parents? Would the parent(s) be seeking Medicaid assistance at some point in the near future, specifically within the next five (5) years?
2. Is there clear title to the home?
3. Are there other children?

I will explain the reasons for each of my questions.

1.  How old is the transferring parent? Is the parent near or over 65 years of age? Is it possible the parent would be seeking Medicaid assistance at some point in the next five (5) years?

a.   The reason for these pivotal questions is:

i.   If a person intentionally (or otherwise) transfers property (whether a home, land, or cash, or anything of value) for less than fair market value within the five (5) years prior to submission of a Medicaid application, it potentially creates a penalty period of ineligibility.

1.  Medicaid currently has a five (5) year lookback period. The purpose of the look-back period is to prevent individuals who apply for Medicaid from giving away assets to become Medicaid eligible.

2.  The look-back period starts in the month a person applies for Medicaid and is determined by month. For example, if a person applies for Medicaid in August, then the first look-back month is July.[1] However, transfers during or after the month of application would also be reviewed.

If a parent gives their property to a child or children (or anyone else for that matter) for less than fair market value, but then needs Medicaid services within the next five (5) years, that parent may not be eligible to receive benefits under Medicaid until the penalty period has expired. There is a somewhat complicated mathematical process for calculating the penalty period, but put simply the amount determined by Medicaid to be the average daily cost of a private-pay patient in a nursing home facility is divided into the amount of the uncompensated value of a transferred asset.

For example, if your home were valued at $213,710.00, and you transfer it to a child and receive no compensation, then the number of days that would have to pass before Medicaid would start paying for your required nursing home bed would be about 1,000 days or 2.74 years. Now that is an extreme example for the typical potential Medicaid patient. It just made the math a little easier. The current transfer of assets divisor is $213.71, which may not be the actual cost of private-pay nursing facility patient care.

The look-back applies to any asset that is given without fair market value being received in return. There are a few exceptions (this is not a complete list): 1) transfer to a spouse; 2) transfer to a child with a disability meeting SSA disability criteria; 3) transfer to a trust for the sole benefit of a person’s child with a disability meeting SSA disability criteria; or 4) the purchase of an irrevocable funeral arrangement.[2]

What if the child does pay you fair market value? If you are single or a widower, then that income very likely will need to be exhausted before you can qualify for Medicaid, but if you are married certain other exemptions may apply.

If you are near or over age 65, it is important to discuss your plans to transfer assets with a qualified attorney or advisor.

2.         Is there clear title to the home?

Frequently, people who call with this question do not have clear title to the home. While a deed can be prepared, it is important to consider what type of deed to prepare. With a General Warranty Deed the signor, the Grantor, warrants he/she has good, clear title to the land “back to the sovereign.” In other words, back to the day the land came to be a part of the State of Texas. If it turns out that the parent did not have such title, then the parent (or parent’s estate) could be required to pay to clear title, or pay any subsequent purchaser for claims against that person’s ownership of the home, which would be a headache also for the child that came to have the home in his/her name. A Special Warranty Deed typically warrants only the ownership the Grantor (parent) has in the home. While this is okay for the Grantor (the parent in our case), it is not good for the child if the child wants to sell the property in the future and learns that the parent did not have “good, clear” title when the home was conveyed to the child. A Deed (Without Warranty) would have a similar effect.

Homes are frequently sold between individuals who do not involve a title company or who do not check the real property records to determine whether ownership has been properly transferred. Clearing title to homes or other real property can cost thousands and could involve locating descendants of previous Grantors to execute documents to clear up title issues.  

In a recent example, an individual was allegedly named the executor in a will. That individual signed a General Warranty Deed in her capacity as executor to an unrelated purchaser in 1988, without the benefit of a title company’s involvement. The property was sold a second time by General Warranty Deed without a review of the title by a title company. In 2018, that second purchaser sought to sell the property, and the new purchaser required a title policy. The title company would not issue a title policy on the property because there was a break in the chain of title because the individual who had signed the General Warranty Deed as executor was never appointed executor by a court of law, so that person did not have authority to convey the home to the purchaser back in 1988, which put a “cloud” on the title (doubt as to ownership).

To clear this title issue, it was necessary to locate that signor and, although he/she was close to 80 years old, he/she was still alive. The siblings of that signor (executor) also had to be located. It also had to be confirmed that there were no other persons who could claim ownership under the estate of the person who had died in 1988, which involved locating two (2) disinterested persons who knew the family history and confirm there were no other heirs.

If the signor (executor) or the other heirs could not have been located, it would have been necessary to file a lawsuit for a judge to declare ownership of the property and to clear that title. The property in question had a value of less than $30,000.00. With attorneys’ charging between $200 and $300 an hour to locate heirs and clear title to property, it is imperative that sellers and owners alike make sure that they are conveying and receiving good title to property.

3.         Are there other children?

            Another important issue that has frequently arisen is that the home is owned by a living parent and the estate of a deceased parent. Questions that arise under this instance are:

• Whether or not the person died with or without a will, was this deceased parent’s estate probated?
  • If the answer is yes, then that makes things a little easier. The person appointed as executor or administrator of the estate has the authority to transfer the property on behalf of the deceased parent. However, in the typical situation, and in the telephone calls I have received, a probate did not happen.
• Does the deceased parent have children that are not also children of the living parent?
  • If the answer is yes, then those other children have specific rights to the home owned by their deceased parent. Those rights would need to be considered in any transfer of the home. While the living parent can sign a deed to transfer the living parent’s ownership in the home, without a probate or other administration of the deceased person’s estate, the living parent is only transferring his/her ownership interest in the home, while the deceased parent’s estate still retains ownership of a part of the home.
• Are there other children of both the deceased parent and the living parent?
  • If the answer is yes and if the home is community property and not the separate home of the person who is deceased, then the living spouse inherits the home. However, a title company may still require a probate because the process of probate provides for a finding by a court of what type of property it was, community or separate, and to determine the true and rightful heirs to the deceased person’s property. The are other remedies besides probate, but some are less effective than others.

Transferring property without taking into consideration title and ownership will cost someone at some point. It is important to obtain competent guidance when seeking to transfer homes or other real property.

The information provided in this editorial does not, and is not intended to, constitute legal advice; instead, all information and content is provided for general informational purposes only. 

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[1] Texas Health & Human Services. Medicaid for the Elderly and People with Disabilities Handbook. https://hhs.texas.gov/laws-regulations/handbooks/mepd/chapter-i-transfer-assets/i-2000-look-back-period

[2] Texas Health & Human Services. Medicaid for the Elderly and People with Disabilities Handbook. https://hhs.texas.gov/laws-regulations/handbooks/mepd/chapter-i-transfer-assets/i-3000-exceptions-transfer-assets

© 2020, Deirdre Kelly Trotter, J.D.