Friendly liens aren’t so friendly

Have you heard the theory about filing a friendly lien to protect your assets?

The theory is that if you file liens with the county recorder’s office that show there are more liens than equity in your home, the bad guys are going to leave you alone.  Couple of challenges with that theory.

The first is that your are probably committing fraud.  Thank about this for a bit.  You are filing a legal document with a government agency saying there is a valid lien against your home.  Unless money actually changed hands you are making a false statement.  I know of at least one person who was convicted by the feds for such behavior.

Other challenge is that you are probably running afoul of your state’s fraudulent conveyance laws.  Under the fraudulent conveyance laws, a transaction that is taken to hinder, delay or defraud creditors can be declared void.  That is fancy language for saying the transaction can be unwound.   By the way, a recent case suggests that a court could effectively ignore any statute of limitations defense to a fraudulent conveyance.

In the case, the debtors had a few deeds of trust filed against their home.  The bankruptcy trustee asserted that 2 of the deeds, filed by one of the debtor’s Mother, were fraudulent.  The debtors fought the assertion by saying that the statute of limitations had run.  The “friendly” liens were filed in 2004 and 2009.  However the BAP (Bankruptcy Appellate Panel) opined that the statute wouldn’t begin to run until a creditor finds out the conveyance was fraudulent.

Compare this with the position that the statute ticking when the lien was filed, 2004.  If the statute of limitations count began when in 2004, yes the statute would wiped out the possibility of voiding the conveyance.  However the court said the clock didn’t start ticking until the creditors had reason to believe that the conveyance was fraudulent, 2012 in this case.

In short, friendly liens probably aren’t the cure all they are pitched to be and if anything are going to call into question the truthfulness of any of your future dealings.