Trustee may Avoid Fraudulent Transfer under § 548(e) even if the Property was Exempt as Debtor’s homestead at the Time of Transfer

Trustee may Avoid Fraudulent Transfer under § 548(e) even if the Property was Exempt as Debtor’s homestead at the Time of Transfer

Debtor transferred real estate to Blue Mountain before filing bankruptcy. Trustee seeks to avoid that transfer under § 548(e). Blue Mountain argues that the transfer was ineffective, that Debtor did not make the transfer with the requisite intent, and that the real estate was exempt and not subject to an avoidance action.

On March 11, 2013, Debtor issued a quitclaim deed conveying the real estate to Blue Mountain. On April 6, 2015, the State District Court entered a $462,581.70 judgment against Debtor. On December 15, 2016, Debtor filed this Chapter 7 bankruptcy. On his schedules, Debtor stated that he transferred the real estate to Blue Mountain and received nothing in exchange.

On February 6, 2017, Trustee filed this adversary against Blue Mountain, seeking to recover the real estate that Debtor transferred to Blue Mountain. On July 7, 2017, Trustee filed a motion for summary judgment. On February 5, 2018, the Court denied that motion for summary judgment as to Trustee’s cause of action based on 11 U.S.C. § 544(b). In particular, the Court found that “a transfer of exempt property is not fraudulent” under State Law. The Court found that the record was unclear about whether Trustee agreed that the real estate was Debtor’s homestead but found that “either way . . . summary judgment must be denied.” The Court did not address Trustee’s cause of action based on 11 U.S.C. § 548(e).

On February 8, 2018, Trustee filed this Motion for Summary Judgment (11 U.S.C. § 548(e)). Trustee again seeks to recover the real estate that Debtor transferred to Blue Mountain under § 548(e). Trustee argues that the undisputed facts meet the elements of 11 U.S.C. § 548(e). Trustee also argues that Lumbar v. Welsh (In re Lumbar), 457 B.R. 748,753 (B.A.P. 8th Cir. 2011), shows that the Trustee can avoid transfers of exempt property under 11 U.S.C. § 548(e). Trustee asks the Court to avoid the quitclaim deed from Debtor to Blue Mountain.

Blue Mountain objects. Blue Mountain argues that Trustee failed to establish the necessary elements of 11 U.S.C. § 548(e). First, Blue Mountain argues that there was no transfer. Blue Mountain argues that the transfer is void under State Law because Debtor’s spouse did not sign the deed. Second, Blue Mountain argues that Trustee did not show that “the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.” 11 U.S.C. § 548. Blue Mountain argues that the Trustee provided no evidence on this required element. Finally, Blue Mountain argues that the property was exempt as Debtor’s homestead when he transferred it. Blue Mountain attempts to distinguish In re Lumbar on the basis that the Court in that case addressed an action under 11 U.S.C. § 548(a), not § 548(e).

Trustee replies that the doctrine of judicial admissions bars Blue Mountain from arguing that the transfer did not occur. Trustee also argues that the undisputed facts show that Debtor made the transfer with the requisite intent. Trustee relies on two nearly identical adversaries in this same bankruptcy where this Court found as a matter of law that Debtor made the transfers with “actual intent to hinder, delay, or defraud.” . Trustee also argues that In re Lumbar applies to this case and allows recovery of exempt property. Trustee concludes that the transfer is avoidable under § 548(e).

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