What is a fraudulent conveyance?

| Aug 11, 2020 | Real Estate |

Fraudulent conveyances go by many different names, including fraudulent transfers and voidable transactions. California law favors the lattermost as of 2016. Though the names vary, the purpose remains the same: To prevent a creditor from taking possession of a debtor’s property by transferring it to another entity.

If there were no law against a fraudulent conveyance, debtors could avoid repossession of their property by simply transferring it to another party whenever they wished, leaving the creditor with no remedy. However, a conveyance that takes place for fraudulent purposes is voidable under California’s Uniform Voidable Transactions Act. This means that the creditor can take possession of the property to satisfy a debt.

What makes a conveyance fraudulent?

A transfer of property represents a fraudulent conveyance if the debtor intended to defraud, hinder or delay collection efforts by the creditor. If such intent was present on the part of the debtor, it does not matter whether the transfer occurred before or after the creditor made a claim against the debtor.

How does the court determine whether there was intent to defraud?

In determining whether there was intent to defraud on the debtor’s part, the court considers facts such as whether the debtor was insolvent at the time, whether the transfer occurred under concealment and who retained control of the property, the recipient or the debtor. A transfer that involves an exchange of reasonably equivalent value is not voidable.

How long does a creditor have to make a claim for relief?

Generally, a creditor has seven years after the transfer occurs to seek relief under the Uniform Voidable Transactions Act. Under some circumstances, the window of opportunity decreases to four years.

A decision by the 4th District for the California Court of Appeals in 2017 established that the time frame a creditor has in which to file for relief applies even when the fraudulent transfer involved a nonexistent corporation. In other words, a creditor must act within the designated time frame even if the debtor essentially transferred the property to himself or herself.

FindLaw Network