Recently the Uniform Fraudulent Transfer Act (Debtor and Creditor Law §270 and following) became effective in New York replacing the similar statues allowing creditors to set aside or reverse transfers by their debtors actually intended or statutorily deemed to have been made with an intent to hinder, delay or defraud one of the debtor’s creditors. The purpose of the new statute is to prevent those who may owe debt from disposing of their property available to pay their current or future creditors’ claims when the debtor has the wrongful intent of delaying collection of the debt, cheating their creditors or engaging in actions that have the same effect. Actions treated the same as delaying or cheating creditors include (while the debtor is insolvent or if the transfer makes the debtor insolvent), making gifts, transferring title to property for little or nothing or an unfairly small amount in return, and/or giving a mortgage or security interest to another person without receiving a fair, equivalent amount in money or in other property with value to creditors. The new law allows four years after the transfer to bring an action to reverse an improper transfer after February 1, 2020.
These laws apply to both businesses and consumers. One frequent example of a transfer that can be reversed is a transfer of debtor’s title to real property to another when a lawsuit is threatened. Another frequent example is transferring title to property- both personal property and real property—to become eligible for governmental benefits such as Medicaid.
Not all fraudulent transfers involve a consciously wrongful intent. Examples include: a sale in which the insolvent debtor honestly and in good faith sells property for an unreasonably low amount, a debtor who is unaware of the true value of the property or one eager to raise cash to pay bills who seizes the first offer out of desperation can be set aside.
Because no one truly knows another’s motivations, the statute creates events or circumstances from which a court may infer actual wrongful intent. Case law has established additional events that may be taken into account. Some of those factors are: a) the debtor did not receive a fair, equivalent amount in exchange for the his transfer; b) the debtor still had control and use of the property after the transfer; c) the recipient of the transfer has a close or confidential relationship with the debtor making the transfer (for example, a wife or child); d) the unfair transfer left the debtor’s remaining assets subject to creditor’s claim worth less than the total claims owed by the debtor; e) a claim against the debtor recently arose (for ex. an auto accident) or litigation just started, f) the debtor engaged in a transaction unusual for the debtor or outside of debtor’s usual course of business; g) proceeds received are used improperly. The facts surrounding each transaction always must be considered, especially how they may appear to a third party. There are some defenses to claim under the statutes, such as, restoring the property transferred to the debtors.
The law applicable to reversing fraudulent transfer claims is complex and often misunderstood or overlooked. The attorneys at Lacy Katzen LLP have decades of experience in both state and federal courts representing both creditors and debtors in and outside of bankruptcy proceedings. Our attorneys also have experience relating to Medicaid planning and claims involving nursing homes’ efforts to collect for services rendered that often involve reversible transfers.