New Scam Exploiting Veterans

The Washington State Attorney General wants to hear from you if you have been scammed by anyone selling annuities, insurance or estate planning purposed to “protect assets” in order to qualify for VA benefits.  The AG is concerned with non-lawyers selling insurance products and/or irrevocable trusts to disabled seniors.  The scheme is sold as a way for veterans to shield their assets from the VA in order to gain acceptance for benefits.  We understand that some lawyers are also taking part in the scams.

To set the record straight, the VA does not have a look-back or penalty for gifting assets, making this what appears to be an easy sale for the annuity sellers, who charge for the service and receive commissions.

We hear that people are being talked into making unnecessary gifts to children, who then either put the funds into an irrevocable trust or annuity in order to keep them safe from the VA prior to applying for benefits.  This scam also has Medicaid disqualification implications.

If you have been scammed, let the AG know:

Does Washington State have Debtor’s Prison?

Debtor's PrisonYes.  No. Sort of.
Here’s what most creditors (or debtors) don’t realize.  Once a creditor has reduced his claim to a judgment, he now has rights to convert his judgment (what they call in the biz, “levy upon execution”) to cash.  This is done by garnishing wages, garnishing financial accounts, foreclosing real property liens, if any, or getting the county sheriff to take and sell the debtor’s personal property.

The question is this: how do you know where the financial accounts are so that you can garnish them?   The answer is you ask the court for an Order for Supplemental Proceedings, which is a court order, requiring the debtor to appear in court, and truthfuly testify about his assets and their whereabouts.  A creditor can ask to see the debtor’s tax returns, bank statements, certificates of title and deeds (and anything else reasonably calculated to learn where the debtor’s assets are located).

What happens if a debtor just doesn’t show up to testify?  This is where things can get nasty.  The creditor then asks the judge to sign a bench warrant for the creditor’s arrest.  The warrant gets filed with the county sheriff, and while the police will not actively look for the debtor, if he is ever pulled over, the warrant will show up, he’ll be arrested, and will spend a few hours in jail before he posts bail.  So technically, that isn’t debtor’s prison, because the offense is not being a debtor, but ignoring a court order to appear and testify.  But if you’re the debtor, it’s still time in jail, however characterized.

Washington Supreme Court upholds “Equitable Lien” on One-Half Future Real Estate Sale Proceeds

Divorce attorneys do this all the time.  They document a property settlement between divorcing spouses by agreeing to award the real property to one spouse, and specifying in the decree that the other spouse shall receive a portion of the proceeds when the real property sells.  Here’s the problem – does this create a lien for an amount that is “to be determined later?” And is it fair to other judgment creditors to have to contend with this nebulous moving target?

The Washington Supreme answered yes in Bank of America v. Owens, 173 Wn.2d 40, __ P.3d __ (2011).  In this case Bank of America won a prejudgment attachment lien against Owens (arising from a defaulted promissory note).  This attachment lien was against all of Owens’s King County real property.  But this occurred after Owens’s former spouse, Treiger, had recorded his and Owens’s  divorce decree which awarded Treiger an interest in one-half the sale proceeds of one particular parcel.  Relying on Swanson v. Graham, 27 Wn.2d 590, 597, 179 P.2d 288 (1947) (“In order to create a statutory lien, there must be a judgment for a specific amount.”), Bank of America argued that Treiger’s lien interest was invalid because it was not for a sum certain – i.e. it was not a “statutory lien.”  The Washington Supreme Court agreed the decree was not a statutory lien, but still awarded Treiger priority over the Bank, by allowing Treiger an “equitable lien.”  In other words, Treiger was first in time, thus fairness dictated that Treiger’s interest trumped the Bank’s.

Here’s the takeaway:  The Owens case expressly provides that in order to have an equitable lien, the particular real property must be adequately described in the decree.  Recite the legal description and tax parcel number in the decree, and refer to the real property’s vesting deed in the recording cover sheet.

Did Ryan O’Neal Steal Painting From Farrah Fawcett’s Estate?

This is the question that is a subject of a Los Angeles County Superior Court lawsuit between the University of Texas and Fawcett’s former boyfriend, Ryan O’Neal.  Fawcett left her art collection to the University of Texas when she died.  Warhol Painting of Farrah FawcettThe Universtity of Texas contends there were two Andy Warhol paintings in Fawcett’s collection.  When she died, the University received one painting, but not the other.  The other painting, pictured left, is in Ryan O’Neal’s living room.  The University of Texas is now suing O’Neal over the painting.  O’Neal defends that Warhol gave the painting to him, not Fawcett.  The lawsuit started out in federal court (here is the complaint), was dismissed, and is now in Los Angeles County Superior Court.

Proving that Fawcett (or her trust) owned the painting at the time of her death could be tricky.  First, unlike financial accounts, cars and real property, personal property is usually not “titled” with a deed or certificate of title or registration.  Second, the Deadman’s Statute (in Washington, RCW 5.60.030) precludes people from testifying about what the decedent told them when they stand to gain from it.  The University of Texas’s lawyers will need to resort to insurance records (likely the paiting was insured), photographs and witness recollections to prove their case.

This type of conflict is not uncommon in estates (In Washington, the dispute is sometimes whether the property was “community property” giving the spouse an undivided 1/2 interest, or “separate property” where the spouse has no interest, other than perhaps a small amount allowed by statute).  The best way to avoid these disputes is to keep an updated inventory of personal property assets (really, all assets should be inventoried), and if/when items are given away, indicate so and to whom it was given.  And remember, personal property includes intangible items, such as digital photographs, royalty rights, domain name registrations, etc.  And while you’re at it, keep an inventory of email accounts and passwords.  (see recent Seattle Times article on this, quoting our former colleague, Wendy Goffe, from Graham & Dunn).

Why Do I Record my Judgment?

TEP gets this question at least once a month, so we’re posting it, along with an answer.  The question is this:  When and why do I need to record a judgment?

The answer is this:  “A judgment against the owner of a homestead shall become a lien on the value of the homestead property in excess of the homestead exemption from the time the judgment creditor records the judgment.”  See RCW 6.13.090  (Currently, the homestead exemption is $125,000.)  If the judgment is not recorded, then it is not a lien on the homestead.  If you’re not dealing with homestead property, then mere entry of the judgment on the court’s docket is sufficient for it to be a lien on the real property.  See RCW 4.56.190, .200.  Remember, a judgment in one county is not a lien on real property in another county until the judgment is “transferred” to the other county.

Which brings us to the next point:  What if the judgment is in one county, but
the real property is in another county?
  You must abstract the judgment to the new county.  An “abstract” is a piece of paper you obtain from the court clerk, and file it in the court to which you are transferring the judgment.  Once transferred to the new court, the judgment gets a new case number, and is a lien on the judgment-debtor’s non-homestead real property in that new county.  Any efforts to collect on the judgment in the transferee county must be done under the new cause number.  And again, if the homestead is in the transferee county, you must also record the judgment with the Auditor/Recorder in the new county.

Attached here is a fabulously written appellate brief by our former colleagues at Graham & Dunn that dissects the judgment lien statutes.  The case is Fisher Broadcasting v. Squirrels Nest II, LLC.  In this case, Fisher Broadcasting won judgment against a contractor, who sold his rental condo to third-party buyers.  The judgment was entered on the court’s docket just two days before the sale closed – meaning the title company, Old Republic, missed the judgment.  The sale closed with Fisher’s lien on title.  Old Republic tried to avoid the lien for the insured-buyers, arguing they took free of the lien because they had no way of knowing about it before the sale.  The court agreed with Fisher Broadcasting and upheld the lien.  The unpublished opinion (affirming Fisher’s summary judgment) is here.