By LEE HORNER Esq., Goldstein, Horner & Horner Attorneys, Tucson, AZ

Just when you think the “stop foreclosure now” scam artists have run out of ways to bilk the unsuspecting public with “no bankruptcy needed” foreclosure stall tactics, another one shows up.

For years they have recommended deeding a minimal interest to a family member who would then file a pro-se Chapter 13. Once stay relief was ordered, they could deed to another family member and so it would go, stalling the inevitable loss of the property for months or even years, and always increasing the lenders’ cost to get stay relief.

Well, the latest trick seems to be the deeding of a 1% interest to someone in an active Chapter 13 in a distant state, with the view, apparently, of never getting clear title to the property and maximizing the free rent period.

Since data miners can and do locate active Chapter 13 cases everywhere,  for a fee, jumping state lines with a bogus 1% conveyance to a distant and unsuspecting debtor should do the trick, right?

Consider a case we know about where a Chapter 7 debtor near Lodi, California, while still in his 7, deeded a 1% interest to an unrelated (and unsuspecting) Chapter 13 debtor in Arizona to stop a foreclosure in Lodi.

It would take the lender a while to figure this all out, the lender would file a claim in the Arizona 13, a claim objection would be filed; stay relief requested and likely granted and the 14 day stay after relief was granted, required by F.R.B.P. 4001(a)(3) would delay things even more.

Free rent, the squatter is thinking as the foreclosure “consultant” explains to him that he doesn’t even need to really sign the deed of the 1% interest; it can be forged to make the jackpot even more interesting.

So at this point the lender and the transferee debtor can engage in a goose chase (claim filed/claim objection; stay relief motion/opposed motion) or, as we suggest instead, a goose shoot, ending the stay immediately with no 14 day delay, and in fact, by a stipulated application for an immediate order in an adversary case, fixing the problem for good.


As a matter of law, the stay in the transferee’s Chapter 13 doesn’t affect the property in question but until something is done by the court to bring that point home, this fact isn’t all that clear.

The transferee debtor should never stipulate to stay relief in a case like this. The transferee debtor’s admission that his stay is operative and that there is no defense to the creditor’s lift-stay motion brought under 11 U.S.C. 362(d)(2) pursuant to F.R.B.P. 4001 et. seq. could well be used against the innocent transferee 13 debtor in later allegations that he was part of the scam and fraud on the bankruptcy court or at the least, filed his Chapter 13 plan in bad faith.

Possible denial of the 13 debtor’s discharge, not to mention a bar to his

re-filing might be imposed if he is deemed to have a part in all this and might well cost the innocent 13 debtor substantial attorneys’ fees to defend such a case.

Worse yet, if stay relief is sought by means of a noticed hearing, there is even more delay while the notice period elapses, even if the lender can make a case for irreparable harm.

If, however, the stay in the transferee’s 13 isn’t operative in the first place, then there is no bar to foreclosure now, but what lender is willing to take that chance without some sort of court order?

Isn’t stay relief the easiest way to go?

Not at all!  In the interim, while you await arrival of the hearing date for stay relief, the wild goose runs merrily down the road and the homeowner continues to squat on the property rent free.  The more continuances the better, after all.

But remember hearing something in law school about “delivery” of a deed being required to convey title?  Have you (before this) ever seen or heard of an undelivered deed inter vivos where the fact of actual conveyance was called into question.

Here’s where that obscure academic concept finally sees the light of day in court proceedings.


In most jurisdictions, delivery of a deed to the transferee with the present intent to part with title by the transferor, and knowledge of and acceptance of the deed by the transferee are both part of the “delivery” requirement; all elements must be met before title actually passes as a matter of law.1

Although delivery is rebuttably presumed by recordation, that presumption can be rebutted by a declaration from the transferee attesting to non-receipt of the deed, lacking knowledge about the purported conveyance,

and non-involvement with the property in any manner.

Thus, the conveyance is void ab initio for want of delivery.  This concept is either up or down, by the way.  There is no gray area.


Once the lender figures out what happened, its counsel needs to contact the transferee debtor’s counsel, advise him or her of the fraud, and get a stipulation for a quick fix.

The fix is this.  First, an adversary complaint seeking declaratory relief,

not a motion for stay relief, is filed in the transferee bankruptcy case.

The adversary complaint seeks declaratory relief in the transferee’s Chapter 13 that:

A.     The automatic stay in that case does not affect the

property in question;

B.     The deed to the 13 debtor, described by the recording particulars and date of execution, is wholly void for want of delivery, and thus, there is no operative conveyance. Remember if it’s a “gift”, alleging invalidity for no consideration won’t work;

C.     The Chapter 13 debtor at no time had any interest in

the subject property and never received the deed

(even if recorded); and

D.     The Chapter 13 debtor does not occupy the premises, never did, and need not/will not be named as a party defendant in an eviction proceeding on the property in question.

Note that if the 1% deed also contains a forged signature (compare with the signatures on the mortgage instruments to see if it does), there is an additional argument that the property owner never conveyed any interest to the transferee debtor in the first place.2

As the transferee debtor’s counsel, I would insist that the lender never sue my innocent debtors for eviction because they could find themselves with an eviction judgment on their record that would be a severe detriment for many reasons, not the least of which would be trying to rent property themselves.

How could that happen without the protection described in this agreement?

Easy. Service of a state court eviction summons on the transferee debtors by posting a summons on the front door of the property in question (which they would never see nor know about), their failure to appear and obtaining a default judgment.  That’s how.

They now have an eviction judgment on their credit reports which, although being tantamount to an identity theft, is still a damaging public record that many landlords won’t want to have explained as they stamp “rejected” on future property rental applications.

Back to the fix.

The 13 debtor’s counsel signs a stipulation for entry of an order in the adversary case, that provides for all of the above relief and the lender agrees not to file a claim.

The stipulation for order is immediately lodged with the Chapter 13 judge with a cover letter advising that this fraud is being perpetrated in his or her court and the order needs execution immediately.

Once the order is entered, a certified copy is obtained, and the foreclosure can proceed that very day with the order being recorded along with the foreclosure deed upon sale.

Because stay relief wasn’t sought pursuant to Procedure Rule 4001, the delays attendant to noticed stay relief hearings and orders granting same aren’t in play, there is now a record made that the transferee debtor is innocent of wrongdoing and if the evidence in the record is strong enough,

the Chapter 13 judge can (and should be encouraged to) make a criminal referral to the United States Attorney for bankruptcy fraud pursuant to

18 U.S.C. 3057.3

Because such stipulated relief is instant and can be done with multiple adversary complaints if there are multiple transferee Chapter 13 debtors, it is more on the order of a wild goose shoot than goose chase.

Also, a court order in such a situation will make subsequent orders easier to obtain if this same debtor pulls this stunt again.


To shoot or to chase the wild goose.  Now lenders have a choice.

The involvement in this fix by the transferee debtor’s counsel and expense to that estate should be minimal.  Because there is no need to file a claim in the transferee’s 13 the claim objection expense is saved as well.

The court involvement for lender’s counsel isn’t any more (and is probably substantially less) than what is required in the typical stay relief contested proceeding and the matter can be resolved in lightning speed.

Using this fix, rather than awaiting a noticed hearing for a stay relief motion,  will have the property squatter out on the street faster than he can figure out what “ouster” means,  and yet another foreclosure avoidance scam will be nullified in the process.

We want to hear from you!  Are you aware of similar schemes?  What happened?

1 California, where this fraud originated, is such a state.

2 This happened in a case with our debtors as innocent transferees.

3 “Any judge, receiver or trustee having reasonable grounds for believing that any violation of ….laws of the United States relating to insolvent debtors….has been committed or that an investigation should be had in connection therewith, shall report to the appropriate United States Attorney [note: not U. S. Trustee], all the facts and circumstances of the case….The U. S. Attorney thereupon shall inquire into the facts and report thereon to the judge, and if it appears probably that any such offense has been committed, shall without delay present the matter to the grand jury, unless upon inquiry and examination he decides that the ends of public justice do not require investigation or prosecution, in which case he shall report the facts to the Attorney General for his direction.”  Emphasis supplied.

Lee Horner has been an attorney since 1985 and is licensed in California and Arizona. He holds a business degree from the University of New Mexico and a J. D. with honors from Lincoln Law School of Sacramento, CA, where he was a regular contributor to the law review.

He has written monographs on the use of Illinois Land Trusts for property ownership by landlords and is the co-author of “Stop Sitting on Your Assets”, a nationally distributed estate planning publication.

He represents consumers and small businesses as debtors and creditors in Chapter 7, 11 and 13 bankruptcy cases.

While in law school he was an estate administrator and chief investigator for a large involuntary Chapter 11 trusteeship which took control over a
Ponzi-scheme mortgage loan operation in California.

He lives with wife Julie in Cortaro Farms, Arizona.

No Author Biography has been linked to this Article.

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