Daily Development for Monday, April 15, 2002
By: Patrick A.
Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu
BANKRUPTCY; FRAUDULENT TRANSFER; REASONABLY EQUIVALENT
VALUE; MARITAL SETTLEMENT: Transfer of
deed to a spouse in a divorce settlement, given to facilitate a mortgage solely
in the grantee's name, which transfer occurred less than a year before grantor's bankruptcy filing, was a
fraudulent transfer where the parties made record statements at the time that
the deed had been given for no consideration and where the grantor had many
creditors and was insolvent.
Wallach v. Altmeyer (In re Altmeyer), 269 B.R. 349 (Bankr.
W.D.N.Y. 2001).
Consequently, the mortgage company that made the secured
loan to the husband, and claimed as a subsequent transferee of the husband, was
not shielded from the avoiding power of the wife's bankruptcy trustee under
section 550(b)(1) because the lender could not have taken "in good
faith" given the recital on the recently recorded spousal deed that it was
for no consideration
The mortgage lender and husband argued that the wife had
received ample consideration in the overall marital settlement that was the
context for the deed. However, the
court declined to "deconstruct the entire financial relationship between
transferor and transferee" and limited its analysis to "the adequacy
of consideration for the particular transaction." The existence in the
chain of title of a "no consideration" deed put the lender on notice
and imposed a duty to inquire into the financial condition of the transferor,
under applicable customary title practices.
Reporter's Comment: In this case, the parties filed a change of ownership report along with the deed (New York Form RP-5217) reciting a consideration of "one and no more dollars. " This kind of recital is made commonly when parties seek to avoid local transfer taxes which are computed on the amount of consideration paid. Bankruptcy lawyers know that the existence of such recital will, as it did here, make it very hard to prove that reasonably equivalent value was received in the event the court finds the property to have been worth more than "one and no more dollars." The Bankruptcy Court suggests that the mere recordation of an accompanying "affidavit of solvency" by the transferor might have cut off the duty of inquiry otherwise imposed on a good faith transferee who finds a no-consideration deed in a recent chain.
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