[CLBS] LLC-owned building and availability of the Idaho homestead exemption

[Randal French]

Tecla

Hi, how are you doing?  Well  I hope.

I did not read the case you referenced.  It may already cover all the issues I mention below.  If so, ooops.

Is this a residence or a business that has living quarters in it? Does the LLC have any debt?   That may make a difference in approach.

I am leery of trying to claim a homestead exemption on property owned by a different legal entity.  I think that it is a certain litigation, even if you may prevail.  It would seem that the clients do have an equitable interest or at least some  interest, and could exempt that interest.  I would just be afraid that Judge Myers would reject that and say the LLC is a separate legal entity that owned the legal and equitable interests in the property, and has no exemptions of any kind.  

If they could convey title to themselves, then  they are the legal and beneficial owners and could claim an exemption.  There are potential problems in doing  so.  Are there any judgments against the clients that are recorded?  If there are, then  those judgments would come ahead of the homestead exemption if the clients conveyed the property back to themselves after the judgments were recorded.

Second, Judge Myers takes it very personally when a person uses an LLC as his or her or their personal plaything.  He would want to see that any transfer of title was not just a transfer for no value, particularly if the LLC has creditors that are not getting paid.  If the LLC is liable on the same debt that the owners are liable on, then your clients may have some  problems.  They do not want to use up the equity by paying for it, but they may lose the equity if the leave ownership in the LLC.

One way to perhaps make a transfer for value is if the owners have rendered valuable services but not been paid for those services by the LLC.  If so, perhaps the LLC could transfer title to them in payment of those services.  But, that likely leads to a taxable transaction which may perhaps wash out.  It is a payment for services rendered, taxable to the owners who receive the compensation, but deductible, it would seem by the LLC.  If the LLC can then pass through the deduction or loss to the owners, maybe it is a wash.  Maybe not.  Have them talk to their tax professional.

Another way may be to dissolve the LLC and transfer the assets to the clients and have the client s accept liability for any LLC debt that they are not already liable on.  The clients would have to strictly abide by LLC dissolution statute.  Even then, there is the possibility that Judge Myers would take exception to the notion that the result was an asset that was exempt from the claims of creditors after the transaction when it was not exempt before the transaction.

One consideration to keep in mind is that time heals all wounds and gives an opportunity to let statutes of limitations run.  If there are not good alternatives, but the clients can convey title back to themselves without having any existing judgment lien get in front of their homestead exemption, then maybe they convey title back to themselves and plan on waiting for as long as possible, at least one year, better to go two years or best to get beyond the 4 year statute of limitations to recover fraudulent conveyances.  Their homestead exemption is effective immediately on getting  title in their names, in state court, and few creditors will litigate the issues of fraudulent conveyance as to a home.

Thanks.
Randy French

Law Office of Randal J. French, P.C.
Attorneys at Law
P.O. Box 836 
Boise, ID 83701 
(208) 859-6881

IMPORTANT NOTICE: This communication, including any attachments, may contain information that may be confidential or privileged and is intended solely for the entity or individual to whom it is addressed. If you are NOT the intended recipient, you must delete this message and attachments and are hereby notified that any disclosure, copying, or distribution of this message is strictly prohibited. Nothing in this email, including any attachment, is to be a legally binding signature.

-----Original Message-----
From: CLBS [mailto:clbs-bounces at admws.idaho.gov] On Behalf Of Tecla Druffel
Sent: Tuesday, April 10, 2018 12:50 PM
To: clbs at admws.idaho.gov
Subject: [CLBS] LLC-owned building and availability of the Idaho homestead exemption

All:

Clients, who are husband and wife, are the only members of a LLC. The LLC owns a building that clients live in. There is equity in the property, but it is less than $100,000. Clients even went so far as to file a homestead declaration on the building (before my time).

My question is this-- given that the LLC is the record owner of the building, may the clients assert a valid homestead exemption in the property? I spent some time researching it and came across *In Re Lavelle*,
350 B.R. 505, a 2005 decision by Judge Myers. I'm not feeling very optimistic.

Has anyone litigated these types of issues more recently than 2005? I welcome any insight or advice.

Thank you,
Tecla Druffel

Tecla Elizabeth Druffel, attorney at law

TED BK, PLLC

312 Main Street

P.O. Box 323

Lewiston, ID 83501

Ph: (208) 743-9569

Fax: 1-(888)-877-4307

tecla at lewistonbankruptcylawyer.com <tecla at qwestoffice.net> _______________________________________________
CLBS mailing list
CLBS at admws.idaho.gov
http://admws.idaho.gov/mailman/listinfo/clbs