REAL ESTATE: Buying a Home in Someone Else’s Name
In our practice as real estate attorneys, we frequently hear “my house is in my mother’s name,” “I used my friend’s credit to buy my house,” or something along those lines. It is actually quite common for people to “borrow someone’s credit” or title a property in someone else’s name, and the reasons behind it are understandable enough. The purpose of this article is to make you aware of the implications of buying a home in someone else’s name
I. Asset Protection
Asset protection is a classic reason. Let’s say you have the resources to buy a house but you are subject to a judgment, restitution, or some other creditor threat. If you title the property in your own name, there is a risk of the creditors finding out and forcing the sale of the property to pay back the debt. The creditor would first have to obtain a judgment against you but, once that happens, your assets will be exposed–with the important exception of your homestead if you live in Florida.
When it comes to asset protection, there is a wide spectrum of techniques, ranging from the very simple to the very sophisticated. Using someone else’s name is pretty much the bottom rung.
Using the name of a family member or close friend is quick, easy and cheap. There is no need to involve an attorney or set up any kind of entity (i.e. LLC or trust). That is the good part and the reason we see people going with this solution. There are some drawbacks, of course.
II. The Double-Cross
The obvious risk is the possibility that the person whose name you use will decide to keep the property. If that happens, there probably will not be a whole lot you can do about it.
After all, for legal purposes, the property belongs to the person who is on title. The fact that you are the one who paid for the property will not be good defense. Your payment(s) will simply be seen as a gift.
III. Spouses & Heirs of the Person on Title
Naturally, you will carefully select the person whose name you are going to use, so the chance of a double-cross is probably pretty slim.
It’s not likely your mother is going to steal your house, right? Okay, but what happens when your mother re-marries and your new step-father has a say in the matter?
It actually is quite uncommon for our clients to complain of the trusted person betraying them, even though fallings out are certainly a part of life. It is not so uncommon, however, to hear stories about problems with an in-law or, even, the heirs of the trusted person. Don’t forget it’s rather out of your hands whom your sibling or good friend dates or marries.
When this situation comes up, there are at least two negative consequences. First, your asset is exposed. You could lose it. Second, your trusted person is caught between two opposing forces — both loved ones — just for doing you a favor. Not ideal.
IV. Creditors of the Person on Title
Don’t forget that, while you might put the asset out of reach of your creditors, you are exposing the asset to the creditors of the person whose name you use — that includes past, present and future creditors.
Are you going to diligently monitor the trusted person’s debts on an ongoing basis? Do you really know everything in that person’s past? And, what about unexpected circumstances like an accident or bankruptcy filing?
So, for example, if the trusted person is at fault in a car accident and there isn’t enough insurance to cover the other parties’ damages, you can bet the injured party will be going after any and all assets in the driver’s name. And, at that point, it’s a little too late to transfer the property out of the trusted person’s name. (You can try, but it probably won’t hold up).
And then there is bankruptcy. Trying to explain to a trustee that the home doesn’t really belong to the person on title is very dodgy business indeed. Good luck with that.
The trustee’s job is to marshall as many assets as possible in order to pay creditors. Even if the trustee is sympathetic, she will have to do her job. Don’t expect any mercy.
There are a number of other solutions to the asset protection issue, such as setting up an asset protection trust, that will allow you to avoid these pitfalls. Yes, it will cost a little bit of money and you will need an attorney, but we are talking about a significant investment here, right? We hear sad stories in our office every day. Would you rather pay your attorney a little bit at the outset or a lot later on when something goes wrong?.
V. Borrowed Credit
The other common reason a home might be titled in the name of someone other than the person paying for it is a lack of good credit. I have less to say about this situation because, actually, is probably a more defensible motive.
First, if the only way to get the property is with someone else’s credit then, from one point of view, you don’t have so much to lose. Maybe it’s a worthwhile risk.
The obvious exception would be where you come in with a sizable down-payment — which tends to be the case. Then, maybe, you want to think twice because you do have something to lose.
My only suggestion would be to utilize the trusted person as a co-signer rather than actually put the person on title. If that is an option, it is a better solution.
Second, if the home is financed, then your exposure is limited to the equity in the property. So, at least the risk is somewhat minimized.
You could build in some additional protection by including your name on the title and/or registering the property as a homestead. Moreover, you could have the trusted person name you as the beneficiary of the property in his/her will or trust.
Obviously, borrowing someone’s credit is not the ideal scenario, and you should work on getting the title into your name as quickly as you can. That said, the dilemma is understandable and, in some cases, there may not be a whole lot of alternatives.