Legal Question in Real Estate Law in California

Fraudulent Transfer of Property?
Hello,

I suffer from bipolar disorder and agreed to transfer ownership of my property to my father to keep it in safer hands. A few days before the deed was recorded, an out-of-state summons was left at an old residence of mine and the current resident returned it to the court as he didn't know of my whereabouts. He located me recently through an internet search and explained what transpired and recalled some details. An old client of mine from '99 is suing for 23k-alleging breach of contract. He was dissatisfied with some collectibles I sold him and I stopped making payments when he breached his agreement to return merchandise upon payment. I will contact the court to receive the papers.

My concern is this-if I lose the case, could my legitimate transfer be considered fraudulent? How do I protect myself? How severe are the consequences typically?

Thanks for your assistance.

Asked on 1/11/03, 3:47 am

3 Answers from Attorneys

Robert Mccoy Law Office Of Robert McCoy

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Re: Fraudulent Transfer of Property?

Since the transfer to your father was without any consideration (money) whatsoever, and because your father is essentially managing the property for your benefit, if a judgment is entered against you, the property could very well be in danger. There are much better and safer ways to protect your property from a judgment other than transferring it to a relative. For example, if you live on the property you could claim an exemption. Of course, I would need much more information from you than you have provided to determine if any property you own is at risk. If it is, there are alternatives like a bankruptcy payment plan, or simply liquidating all your assets and buying exempt assets with the cash. I will need more info from you to advise you of your alternatives. Please feel free to contact me.

Answered on 1/11/03, 8:48 pm

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Bryan Whipple Bryan R. R. Whipple, Attorney at Law

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Re: Fraudulent Transfer of Property?

California's version of the Uniform Fraudulent Transfer Act is found at Civil Code sections 3439 et seq. and is reasonably easy for a non-lawyer to understand, at least as to the basic concepts.

A transfer to a relative for less than 'reasonably equivalent value' such as you made is likely to be deemed fraudulent as to this creditor.

The attempted service on you seems to be defective, but you are apparently prepared to accept service and face the (alleged) creditor. This is commendable. When you have received and reviewed the summons and complaint, you will be in a better position to decide whether to defend, offer settlement, or some other strategy. I think you should answer the complaint, however, rather than defaulting.

If you win, you don't have to worry about the transfer, at least with respect to this creditor. If you lose, or settle, the judgment or settlement may be for less than the $23K claimed, and you may be able to handle the judgment or settlement. Even if you can't, the amount may not warrant the judgment creditor coming after you with a second suit for fraudulent transfer. Such an action would be reserved, usually, for a big judgment or other debt where the creditor had little or no chance to recover without un-doing the allegedly fraudulent transfer.

So, much depends upon the merits of your case and your ability to satisfy a judgment or settlement. If you need cash to handle a settlement or judgment, you could consider working with your father to take out a small equity loan on the property. Work with the judgment creditor or his attorney at this point to avoid the filing of a suit or lis pendens on the home.

Answered on 1/13/03, 3:10 pm

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