Carol J. Wessels
Attorney at Law
Nelson Irvings & Wessels SC
[IMPORTANT UPDATE TO THIS ARTICLE – PLEASE TAKE A LOOK AT THE POST HERE TO READ ABOUT SOME NEW DEVELOPMENTS THAT MAY AFFECT ISSUES I WROTE ABOUT IN THE ARTICLE BELOW!]
As I explained in my first post, Wisconsin’s new Medicaid laws (as enacted in the 2013-2014 Biennial Budget) make significant changes to the way Wisconsin handles certain aspects of the Medicaid program for individuals who need long term care. Supposedly, the justification for these changes is to maximize the amount of money the state is able to “recover” to repay the cost of Medicaid after the individual dies. The more complicated parts of the Medicaid changes are the provisions related to real estate. This week I took some time to analyze these. After figuring it out, I think that people on Medicaid will have a very hard time selling their homes once this goes into effect. Also, innocent buyers will be at risk of suffering annoying and possibly costly consequences just for buying a house formerly owned by someone on Medicaid. The amount of red tape that these new laws create goes beyond reason as far as their relation to recovering Medicaid costs. Here’s the analysis I have put together.
For any of you non-elder law types reading this post (such as my real estate colleagues), Medicaid is the long term care program that provides coverage when an individual needs care in a nursing facility. Family Care is the program that, in most counties in Wisconsin, provides similar coverage for people who remain at home or in an assisted living facility instead of a nursing home. Family Care is also a Medicaid program, and follows Medicaid’s rules for counting resources. In order to qualify for Medicaid, an individual must have very limited resources ($2000 for an individual, and between $50,000 and $115,000 for a married couple under most circumstances.) The first step in obtaining Medicaid or Family Care benefits is to apply.
Any time a person completes an application for Medicaid, the person has to list all real estate that he or she owns. In the eligibility process, one of the major assets that in most cases is “exempt” – not counted in the financial eligibility calculation – is the home that the person or their spouse lives in. This is called the “homestead exemption.” Even when a person is no longer living in the home, it is still exempt if the person intends to return there. If the house is worth more than $750,000, the amount in excess of that is counted.
Even though the house is “exempt” as far as eligibility, there is still a process where in certain cases, the state can obtain a “lien” on the person’s house that can be recovered if the house is sold. The “lien” is open-ended and intended to reflect the amount of benefits that the state paid out for Medicaid. Federal law is very clear on the rules about when a lien can be obtained, and when it can be enforced. Also, after a person who was receiving certain types of Medicaid has died, even where a lien was not put in place, the state can recover some of the money paid out in benefits by making a claim on an estate, and in some cases that includes a house. Federal law is also very strict as to when the state can use estate recovery as it relates to homes and other assets. Federal law prevents the state from enforcing any recovery if a spouse or certain other individuals are living. There are also other exceptions and rules that states must follow.
Importantly, the state can never come and take your home or force you to sell it in order to qualify for Medicaid. This is a misconception that I clear up for clients on a regular basis.
THE NEW “NOTICE” REQUIREMENTS
Wisconsin’s new budget creates a process that allows the state to record documents related to any real estate that a person receiving Medicaid owns, or has an ownership interest in (such as a joint tenancy). Obviously, the state becomes aware of the existence of this real estate because of the application that is filled out. If the Medicaid application is approved and the individual begins receiving benefits, these new provisions take effect. These documents are recorded in the Register of Deeds office for the county where the property is located. The Department of Health Services or “department” (which is the arm of the state government that administers Medicaid) is responsible for implementing these provisions.
- The first document is called a “REQUEST FOR NOTICE OF TRANSFER OR ENCUMBRANCE AND NOTICE OF POTENTIAL CLAIM.” This may be recorded on any property in which the recipient has an ownership interest, which presumably includes joint ownership, a life estate interest, or a living trust. It means that the state wants to be notified if there is a transfer of this property, because the state might have a claim on the property. For short, I may call this a “REQUEST FOR NOTICE”. Even though Federal law says the state can’t engage in recovery while the person on Medicaid is alive, or when the spouse is living in the home, this new law still lets the state record a document on the property that will create issues, simply because that person is on Medicaid.
- The second type of document is called a “TERMINATION OF REQUEST FOR NOTICE OF TRANSFER OR ENCUMBRANCE AND NOTICE OF POTENTIAL CLAIM.” This document can be recorded when the department determines it no longer has an interest in the property. There is nothing in the statute that requires the Department to file this. There is no process where an individual can force the department to file this. For short, I may call this a “TERMINATION OF REQUEST”
- The third type of document is called a “CERTIFICATE OF CLEARANCE”. For short, I may call this a “CLEARANCE”. This is something that is filed to allow a transfer of property. More on this below.
HOW DO ALL OF THESE NOTICES WORK?
When an individual is approved for Medicaid and owns real estate, the department will record a REQUEST FOR NOTICE related to that property. It is recorded in the same way that the bank records a mortgage, individuals record deeds, or a creditor records a lien. Nothing in the law says that the department has to tell the owner that this document is being recorded.
Once the REQUEST FOR NOTICE has been recorded in the Register of Deeds office, it stays on the property until the department issues a TERMINATION OF REQUEST. Any person transferring property where this REQUEST FOR NOTICE is in place, must notify the state Department of Health Services. If the person who is receiving Medicaid is still alive when this notice is provided to the department, then the transfer can take place with no further action by the department. However, even though the transfer can take place as long as the Medicaid recipient is alive, there is nothing that actually requires the department record its approval or to lift the REQUEST FOR NOTICE in this situation. Thus, the house could be sold to an unrelated third party and still have the REQUEST FOR NOTICE on file at the register of deeds. Also, there is nothing that requires the state to take any action on a notice within a particular time. Essentially, where the person on Medicaid is still alive, as long as notice is provided to the department, the property can be easily transferred. But this does not clear the issue entirely, so problems may arise farther down the road.
The first problem relates to title insurance. Usually, when a person purchases real estate such as a home, there is a title insurance policy that is issued. A title company does a search related to the property, to determine whether there are any mortgages, liens, or other “encumbrances” on the property. Under the new law, where the title company does a search and the REQUEST FOR NOTICE shows up as recorded on the property in question, the title company must disclose it in a title insurance policy. This calls the issue of clear title into question. Once this shows up, it is likely that someone will bear the cost of dealing with it. This could happen every time the house is sold, until a TERMINATION OF REQUEST is filed.
The law creates the process for the state to file a TERMINATION OF REQUEST if the state determines it no longer has an interest in the property. However, nothing requires the state to do this, and there is no process for an individual to demand that the state issue a TERMINATION OF REQUEST even when it is clearly appropriate, such as in the case of an arms’ length sale at fair market value. Because the state is not required to affirmatively do anything, then once it is placed, a REQUEST FOR NOTICE could remain on the property indefinitely through numerous owners, causing a title hiccup each time the house is sold.
Once the Medicaid recipient is deceased, if the REQUEST FOR NOTICE is still in place, the property cannot be transferred until the state issues a CERTIFICATE OF CLEARANCE. The person receiving the CLEARANCE must record it with the register of deeds prior to the transfer. If on the other hand, the state believes it can enforce a claim against the property for Medicaid benefits provided to the recipient/owner, the state must notify the individual of the claim.
This brings up the second problem: there is no time frame for the state to either take action on the claim or issue a CERTIFICATE OF CLEARANCE, thus, a potential home sale could be tied up for days, weeks, or months waiting for the state to act.
And also the third problem: if a property is transferred where the REQUEST FOR NOTICE is in place, and where the Medicaid recipient is deceased, and where no CERTIFICATE OF CLEARANCE has been issued, the transfer is not valid! This could trap unwary owners who sell property where a title company is not involved. An individual selling property on a cash basis may not realize the need to obtain clearance. The title company is not involved and therefore it would not get pointed out during a title search. Consequently, a transfer could proceed that is later declared invalid. Future sales could also become complicated if a title company investigating the property during the future sale unearths this problem.
If the department does assert a claim, then there are very complicated procedures to enforce it, including certain exceptions. The department, if successful, can place a lien on the property and even force a foreclosure. If a claim is asserted, the person transferring the property could request a fair hearing on the value of the Medicaid recipient’s interest in of the property, and could also request a “hardship waiver” of the enforcement of the claim. However, the person does not clearly have the right to challenge whether it is appropriate for the claim to be asserted at all. Again, all of this can delay a sale for months or cause it to fall through.
A transfer of property that did not comply with the proper notice requirements, can be declared null and void in an action that the state is allowed to initiate. Even though the law protects an innocent buyer, this does not mean that an innocent third party would not have to defend such an action if the state initiated it.
REAL WORLD EXAMPLE
John Rodriguez has worked all of his life in a blue collar job and has managed to save enough money to purchase a home. He and his wife, Tara, live there together. John has a stroke and heart attack at age 65. The couples’ retirement savings is modest, since they had chosen to invest in their home to provide a secure place to raise their four children. John needs long term care, and qualifies for Medicaid. Tara, age 62, is left with $50,000 in cash assets plus the home. As part of the application process, John must disclose his ownership interest in the home. As a result, the State files a REQUEST FOR NOTICE OF TRANSFER on the home.
Scenario 1: John dies, and Tara decides to sell the home and move to a condominium. She puts in an offer on a nice condo and lists her home. She quickly gets an offer on the lovely, well maintained home. Under federal law, the state has no right to recover any money from the sale of the home while Tara is alive. Nonetheless, Tara must provide notice to the department and cannot complete the sale until the department issues a CERTIFICATE OF CLEARANCE.
Scenario 2: Tara sells the home while John is still alive. She is allowed to do this, but nothing requires the department to lift the REQUEST FOR NOTICE. It remains in place. The purchasers of the home, Marisa and Devon, live in it for ten years, during which time John dies. Devon is transferred to San Diego and the house is listed for sale. An offer is put in place and the Title Company in the closing process, discloses the REQUEST FOR NOTICE. Now, it is Marisa and Devon’s problem to deal with the paperwork needed to complete a valid sale of the house, which may include providing information and evidence to the department regarding the purchase ten years ago, or at a minimum jumping through the hoops to get the department to issue a CERTIFICATE OF CLEARANCE, and paying to have it recorded.
Scenario 3: John dies, and Tara dies some years later. The house has a “transfer on death” deed that allows it to be transferred to their disabled child without probate. When the child goes to change the deed into her name, she must provide notice to the department. The department could assert a claim even though federal law prevents the state from proceeding with estate recovery where there is a disabled child. At this point, the new statute does not give the child the right to dispute the validity of the claim. The disabled child will have to go to court for clarification.
Scenario 4: Since John went into the nursing home, the house has fallen into a state of disrepair. After Tara and John die, the kids will receive the house outside of probate because of Tara and John’s estate plan, and want to sell the house. The county has the house assessed for tax purposes at $250,000. However the consensus of realtors is that the house should not be listed for more than $175,000. When the children go to transfer the house to themselves, the department could file a lien. When they sell the house, the department may demand that it be listed for $250,000, claiming that John’s ownership interest in the property was this much. The children must then go through a hearing process where they must prove the value of the house and John’s interest in it, and pay the state’s claim from the sale proceeds.
ARE CRIMINALS BETTER OFF THAN PEOPLE ON MEDICAID?
In all of these cases, the state is given authority with minimal accountability or oversight. Any attempt to challenge or contradict an assertion by the state is costly. In some cases, the burden of clearing up the paperwork can fall on people who had no connection with the Medicaid recipient except that they bought his house!
I have had years of experience with the department and its ability to make mistakes on the kinds of notices people receive in Medicaid cases. This is part of the clean up work that my office does for clients on a regular basis. Sometimes, clients will receive as many as four notices, all saying different and conflicting things related to their Medicaid eligibility, in the same day! With this experience I do not have a lot of faith that the department will correctly process these matters in a timely manner. Sales will be lost. In time, real estate professionals will become wary of the traps created by this notice law, and may steer prospective buyers away from a property with a notice recorded on it.
It remains to be seen what the department will come up as far as a proposal to implement this fiasco. Until these things are cleared up, I imagine that as word gets out it will be more difficult for people to sell property where it was owned by someone on Medicaid.
This causes me to wonder why the state is taking such draconian steps against elderly individuals, just because they had the foresight to invest in the American Dream, a home. An individual who was less frugal, frittered money away and did not invest in a home, would receive the same Medicaid benefits, and not be penalized for being a homeowner. Even more offensive is that as far as I can tell, a homeowner can commit a crime and go to prison, receive food, housing and medical care there, which the State is required to provide, and still come out with no lien on their home. If I am wrong about that, I hope someone will point it out.
Said another way, should Wisconsin treat its frail elderly worse than criminals? I guess our legislature thinks so.