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Intentional Fraud is Not Enough- A Real Estate Conveyance Is Not Undone as a Fraudulent Transfer Because the Total of the Liens plus the Homestead Exemption Wiped Out The Equity in the Property.

Under California law, the Uniform Fraudulent Transfer Act allows defrauded creditors to reach property in the hands of a third party, if a debtor transfers an asset with the intent to prevent a creditor from reaching that interest to satisfy its claim.”

In a recent California decision, Gordon owed his ex-wife over $70,000 in spousal support. She obtained a judgement and recorded it so it would be a lien against any real estate that he owned. Gordon and his girlfriend refinanced their house which was in both their names, at which time the debt should have been paid, but the title insurance company missed it, so they had to pay the ex-wife, and then recorded a new lien against Gordon. Gordon then fraudulently conveyed his half interest in the property to his girlfriend so the title company couldn’t get to it.

The court looked at how much money could be raised for the creditor if the house was auctioned. Gordon’s half of the equity in the property was only about $9,400. But, as it was his residence, he was also entitled to an automatic (undeclared) homestead exemption of $50,000. This exemption protects the debtor when the creditor seeks a court-ordered sale of the house. If the judge finds that the sale price will not be greater than all liens, plus the homestead exemption, there will be no sale. That was the case here, and the title company could not get the house sold.

What is curious about this case is that the title company must have run the numbers to see what equity Gordon had in the property- why would they chase this through the court of appeal, incurring all those fees, when it should have been obvious that there was nothing to gain?
Fidelity Nat’l Title v. Schroeder Fifth District # F056339

Law Office of James J. Falcone