Fraudulent Conveyance In Real Estate

August 22, 2012 (Press-News.org) The question, is a transfer of real estate from a debtor to his wife, during litigation, in anticipation of a creditor's judgment against him in a construction defect matter, a fraudulent conveyance and therefore void?

Under certain circumstances, the answer is yes. A conveyance, or transfer, is fraudulent if the debtor had actual intent to hinder, delay or defraud any creditor. CRS §38-8-105(1)(a). To determine intent the court will consider a number of factors, known as "badges of fraud." Schempp v.Lucre Management Group, LLC, 18 P.3d 762 (Colo.App. 2000).

In the instant case considered, plaintiff anticipated that defendant-debtor would transfer title to a property in question in a construction defect lawsuit, to his wife. Because his wife is an insider, the court would give close attention to the other circumstances involved in the exchange. C.R.S. §38-8-102(8)(a)(I). The Official Comment to C.R.S §38-8-105 states:

The courts have uniformly recognized ... that a transfer to a closely related person warrants close scrutiny of the other circumstances, including the nature and extent of the consideration exchanged.

Key considerations are whether:
1) defendant had been sued before the transfer;
2) he was or became insolvent shortly after the transfer;
3) he disclosed or concealed the transfer;
4) he received "reasonably equivalent value" for the transferred property.

A number of other factors may be considered depending on the facts of the case. See C.R.S. §38-8-105(2). In addition, if plaintiff can prove that defendant did not receive reasonably equivalent value for the property and that he believed, or should have believed, he would incur debt beyond his ability to pay, intent is not required and fraud is established conclusively. CRS § 38-8-105(1)(b)(II).

If plaintiff shows a sufficient number and combination of badges of fraud, or establishes fraud without intent, the remedy is avoidance of the transfer. Other remedies include:

1) Attachment against the asset transferred;
2) Injunction against further disposition of the asset by debtor or transferee;
3) Appointment of a receiver to take charge of the asset.

Finally, if the creditor has obtained a judgment against the debtor, he may levy execution on the asset or its proceeds. C.R.S. §38-8-108.

A debtor need be extremely cautious in the transfer of his assets prior to, during or after judgment. Construction defect issues give rise to litigation. Frequently real estate and construction judgments are extensive and high value. So, the transfer and sale of any asset during the pendency of litigation gives natural rise to suspicion for fraudulent conveyance.

Abrams & Associates, practices law in the areas of construction, contracting, real estate, foreclosures, mechanic's liens and other matters related to construction, contracting and real estate. Further, Attorney Robert Abrams is a land developer and contractor with over 20 years of experience in these areas. Our law firm is very familiar with the terms and circumstances surrounding a fraudulent conveyance lawsuit.

Robert Abrams, Abrams & Associates, LLC. Construction, Real Estate, Contracts, Litigation