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Quitclaim Deed Deemed a Fraudulent Transfer by California District Court

By WPPilot (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia CommonsA federal district court in Santa Ana, California found that a quitclaim deed from a debtor to the debtor’s spouse, named as a defendant in an adversary proceeding, constituted a fraudulent transfer. In re Sui, No. 8:11-bk-20448-CB, findings of fact (C.D. Cal., Sep. 20, 2013). The court’s findings affirmed a report and recommendation by the bankruptcy court. The district court held that the defendant grantee’s failure to respond to the trustee’s discovery requests constituted an admission of the trustee’s allegations, and that the defendant failed to rebut the trustee’s evidence of fraud. It entered a summary judgment order avoiding the transfer and returning the debtor’s interest in the property to the bankruptcy estate.

The debtor filed a petition for Chapter 7 bankruptcy in July 2011. The following November, the court-appointed trustee filed an adversary proceeding against the debtor’s spouse. The debtor and the defendant had previously owned real property in Costa Mesa, California as joint tenants, but the defendant had received full title via a quitclaim deed recorded by the debtor in 2009. The debtor and the defendant were married at the time of the transfer. The trustee alleged that the quitclaim deed was an intentionally fraudulent transfer.

The trustee served the defendant with requests for admissions (RFAs) in August 2012. RFAs are a type of discovery conducted during litigation, in which one party asks another to admit or deny various questions of fact. These can be used to save time later on, such as by asking a party to admit undisputed facts, but they can also put a party on record as admitting or denying issues of fact that are in dispute. If a party does not respond to a set of RFAs within a specified period of time, usually around thirty days from the date of service, the RFAs are deemed “admitted,” and the burden falls on the non-responsive party to “un-deem” the admissions. The defendant in the present case did not respond to the RFAs at all, resulting in the court adopting the trustee’s factual allegations as true.

The court, based on the evidence presented by the trustee and the defendant’s deemed admissions, found that the quitclaim deed was genuine, that the debtor and the defendant signed it in May 2009, that the debtor filed in in June 2009, and that it served to transfer all of the debtor’s interest in the property to the defendant. The court further found that the debtor did not receive anything of value, such as money or other property, in exchange for the quitclaim deed. The debtor was insolvent at the time of the transfer, but the court also found that the transfer rendered the debtor insolvent. Finally, the court noted that the transfer occurred within four years of the Chapter 7 filing date. It held that the transfer had “[a]t least six badges of fraud” under the Uniform Fraudulent Transfer Act. Id. at 7, citing Cal. Civ. Code § 3439.04.

The bankruptcy system offers relief to people in financial distress, providing them with a way to restructure and pay down or eliminate their bills, and even obtain a discharge of their debts. Bankruptcy attorney Devin Sawdayi has guided countless clients in the Los Angeles and surrounding areas through the process of both Chapter 7 and Chapter 13 bankruptcy since 1997, helping them rebuild their financial lives with respect and dignity. Contact us today online or at (310) 475-9399 to schedule a free and confidential consultation regarding your case.

More Blog Posts:

Exemption of Property in California Bankruptcies, System 2, Los Angeles Bankruptcy Lawyer Blawg, September 20, 2013

Exemption of Property in California Bankruptcies, System 1, Los Angeles Bankruptcy Lawyer Blawg, September 18, 2013

Payment of a Debt Prior to Bankruptcy is Not a Fraudulent Transfer, According to Ninth Circuit, Los Angeles Bankruptcy Lawyer Blawg, June 20, 2013

Photo credit: By WPPilot (Own work) [CC-BY-SA-3.0 or GFDL], via Wikimedia Commons.