Voluntary Conveyance

Voluntary Conveyance: Definition, Uses, and Risks

Voluntary conveyance is the deliberate transfer of real estate title from one party to another without adequate consideration (i.e., without fair market compensation). Because the transfer lacks normal payment, it often requires a clear legal reason and can carry tax and creditor implications.

How voluntary conveyance is used

• Preventing foreclosure: A borrower facing mortgage default may voluntarily convey title to the lender to avoid a formal foreclosure on their credit record. The lender can accept the title and then sell the property; depending on local law, the lender may still pursue a deficiency claim or insurance remedies.
• Charitable donations: Donors can convey property to qualifying charitable organizations. To achieve intended tax benefits, the organization must have an active IRS tax-exempt status and the donation should be supported by independent appraisals and tax advice.
• Gifting to descendants: Owners may transfer property to heirs during life (gift deed) or by will. States often allow nominal consideration (e.g., “love and affection”) on gift deeds. Such transfers can be challenged by creditors if made to evade valid claims.

Fraudulent conveyance and creditor risks

Transferring property specifically to thwart creditors is typically illegal. Courts categorize improper transfers as:
– Actual fraud: intentional efforts to deceive creditors.
– Constructive fraud: transfers that, in effect, unfairly impair creditors’ rights even without explicit intent.

Creditors can pursue civil actions to undo fraudulent conveyances and recover assets. Transfers shortly before anticipated claims or while insolvent are particularly vulnerable to challenge.

Involuntary conveyance (contrast)

Involuntary conveyance occurs without the owner’s consent, such as through:
– Condemnation or eminent domain
– Tax foreclosures for unpaid taxes
– Escheat when an owner dies without heirs

These are government actions that transfer title according to statute or court order.

Practical and legal considerations

• Legal counsel: Always consult a real estate or creditor-debtor attorney before transferring property without full consideration.
• Tax advice: For donations or gifts, involve a tax advisor to determine deductibility and reporting obligations.
• Appraisals and documentation: Use independent appraisals and keep thorough documentation to support the legitimacy and timing of the transfer.
• Timing and solvency: Transfers made when insolvent or shortly before creditor actions are more likely to be reversed.

Key takeaways

• Voluntary conveyance transfers title without adequate compensation and requires legal justification.
• It can be used to avoid foreclosure stigma, donate property to charity, or gift property to heirs—but each use has legal and tax consequences.
• Transfers intended to evade creditors can be reversed as fraudulent conveyances.
• Seek professional legal and tax guidance before proceeding.

Further reading: IRS Publication 526 (Charitable Contributions) and state laws on fraudulent conveyance and property transfer procedures.