Bankruptcy filing complicates life estate deal

When the creditors come knocking, selling half a home might be required -- even if your mother has the right to live there until she dies.

That's the case with Michael Fleming of Bay Shore, whose mother, Joan, 80, deeded her Bay Shore home to him and his sister in a 2001 life estate deal.

In April, the son filed Chapter 7 bankruptcy, and a court trustee is trying to liquidate the son's 50 percent interest in the house to help pay off more than $500,000 in various debts.

The bankruptcy court trustee in the case, R. Kenneth Barnard of Babylon, said he is still trying to avoid an auction and has spent two months "imploring" the son and his family to reach a solution. "I've written to the debtor, Mr. Fleming, I've written to the sister, I've written to the mother in an attempt to see if she has any other way of resolving it or to let her know what was going on," Barnard said. "I haven't had a positive response from anyone."

Michael Fleming declined to comment. His attorney, Eric Stern of Hoboken, N.J., said he was negotiating with Barnard but declined to say more. Calls to Joan Fleming and her daughter were not returned.

Experts disagree on whether a partial interest can be sold either with or without the sister and mother's permission.

While she's alive in a life estate, the mother is the owner, despite the children's names on the deed, said elder law attorney Terry Scheiner in Port Washington, who disagrees with Barnard's position: "It's a future gift."

Over the decades, many parents transferred assets to heirs for safekeeping or to qualify for Medicaid long-term care. Most attorneys said the Fleming case is unusual, but complications might crop up more in this economy as heirs lose income, sell rights and go bankrupt.

"I think the public should rethink how they're going to do their estate planning . . . and how they're going to do their Medicaid planning," said Lewis Edelstein, an elder law attorney in Garden City.

Selling partial interest in a house used to be common in the early '80s, when the economy was not so great either, recalled Melville-based bankruptcy attorney Michael Macco.

In the Fleming case, whoever buys the son's share of the house cannot move in unless the mother agrees, because life estate rights give her "exclusive control and dominion" over the house, Edelstein said.

"I have not suggested anything that would take that away from her," Barnard said. If there is an auction, some buyers, and problems, are expected.

"Who wants to own a house with the guy's sister and the mom still lives there?" said bankruptcy attorney Scott Schneider in Hicksville. "It's loaded with problems."