Attorney Recovery Systems v. Martin

Filed 4/27/07 Attorney Recovery Systems v. Martin Ca3

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

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Defendants Dan W. Martin and Shari A. Martin (the Martins) appeal from a judgment in this action to set aside the transfer of residential property as violative of the Uniform Fraudulent Transfer Act (UFTA). Following a court trial, the court found the Martins -- who purchased the property from the plaintiffs judgment debtor -- jointly and severally liable to plaintiff for damages in the amount of approximately $25,000.

In this pro se appeal, the Martins contend the evidence was insufficient to show they possessed actual, subjective knowledge of fraud by property transferees. We find the evidence was sufficient on the dispositive fact of whether they gave a reasonably equivalent value for the property, and shall affirm the judgment.

Uniform Fraudulent Transfer Act

A very brief overview of the UFTA is in order before we set forth the facts of this case.

A fraudulent conveyance under the UFTA involves a transfer by the debtor of property to a third person undertaken with the intent to prevent a creditor from reaching that interest to satisfy its claim. (Kirkeby v. Superior Court (2004) 33 Cal.4th 642, 648.) A transfer made . . . by a debtor is fraudulent as to a creditor, whether the creditors claim arose before or after the transfer was made, if the debtor made the transfer . . . as follows: [] (1) With actual intent to hinder, delay, or defraud any creditor of the debtor. (Civ. Code,  3439.04, subd. (a); undesignated statutory references are to the Civil Code.)

A defrauded creditor may seek to have such a transfer voided to the extent necessary to satisfy the creditors claim, or apply for [a]ny other relief the circumstances may require. ( 3439.07, subds. (a)(1), (a)(3)(C).) However, a transfer is not voidable against a person who took in good faith and for a reasonably equivalent value or against any subsequent transferee. ( 3439.08, subd. (a).)

Facts and Procedural Background

In or about September 1999, plaintiff Attorney Recovery Systems, Inc., recorded an abstract of judgment in its favor in the amount of $15,198.26, against Gene Donald Fairl and Karen Fairl, individually and doing business as Trany Brake and Tune.

At the time of plaintiffs 1999 judgment, the Fairls owned real property located at 9839 Farris Lane, Elk Grove. In the course of its attempt to collect on that judgment, plaintiff learned that, on March 5, 2004, the Fairls had transferred the 9839 Farris Lane property by quit claim deed to Dan W. Martin and Shari A. Martin, as Trustees of the Martin Family Trust.

The form real estate contract prepared by the parties states that the Martins shall purchase the property for $234,000^[1], of which $55,000 is the down payment, $30,000 shall be in a note to be held by the Fairls, $41,000 shall be paid to the mortgage holder in first position to bring the note current, and $111,000 shall be paid by the Martins assuming the Fairls mortgage obligation.^[2] The contract also states, Sellers Daughter Kim to remain in apartment as long as she desires. [] Buyer to file quitclaim deed immediately. [] Seller to delay filing Chapter 7 bankruptcy to protect and secure the transfer of this enclosed property.

Plaintiff sued the Fairls and the Martins (in their individual and trustee capacities) to set aside the sale of the house as a fraudulent transfer, alleging that the transfer was not made for reasonably equivalent value, and that it was made with an actual intent to hinder, delay or defraud all the Fairls creditors, including plaintiff.

The Fairls neither responded to the complaint nor appeared at trial.^[3]

Dan Martin testified at trial that county records at the time indicated the propertys value was $303,000. Before the purchase, Martin spoke to a realtor who prepared a listing of recently sold comparable homes whose sale prices were between $797,000 and $439,000. He nonetheless believed the price to be a fair one because the house was in disrepair and needed painting and a new roof. The Martins have paid $10,000 to reroof, and $8,000 to repaint the house.

Martin admitted that before he and his wife purchased the property, he performed a title search and knew that many judgments had been entered against the Fairls, and that more than 300 creditors -- including plaintiff -- had filed abstracts of judgment and liens against the property seeking more than $400,000. He contacted three title insurers, and discovered no company was willing to issue a certificate of title insurance on the property.

Finally, Martin denied any attempt to thwart the Fairls creditors, asserting he knew that, at some point, he would have to make good on these liens. However, he admitted knowing that Gene Fairls bankruptcy petition was dismissed on February 19, 2004, right before the transaction. Fairl then stood open to lose everything because [t]he bank had already threatened to start foreclosure on the property, so he and Fairl knew time was of the essence. The transaction was completed within two weeks.

For her part, Shari Martin testified she signed the purchase agreement without knowing anything about the property. Like her husband, Shari Martin denied she ever intended to defraud or hinder the Fairls creditors.

The court granted judgment in favor of plaintiff against both the Fairls and the Martins. It found the Fairls possessed an actual intent to hinder or avoid creditors, in light of (among other facts) Gene Fairls knowledge that an abstract of judgment had been filed, that creditors had attempted foreclosure, and his use of two social security numbers.^[4]

As to the Martins, the court expressly found that the Martins did not give reasonably equivalent value for the property, and Dan Martins knowledge he could not obtain title insurance on the property should have been a red flag . . . that something was going on. The court ordered the property sale by the Fairls to the Martins voided to the extent necessary to satisfy plaintiffs claim.

DISCUSSION

As we have already noted, a transfer made by a debtor is fraudulent under the UFTA if the debtor made the transfer with the actual intent to hinder, delay, or defraud any creditor of the debtor. ( 3439.04, subd. (a)(1).) Whether a conveyance was made with fraudulent intent is a question of fact, and proof often consists of inferences from the circumstances surrounding the transfer. (Annod Corp. v. Hamilton & Samuels (2002) 100 Cal.App.4th 1286, 1294.)

Over the years, courts have considered a number of factors, the badges of fraud [citation] described in a Legislative Committee comment to section 3439.04, in determining actual intent. [Citation.] Effective January 1, 2005, those factors are now codified at section 3439.04, subdivision (b), and include considerations such as whether the transfer was made to an insider ( 3439.04, subd. (b)(1)), whether the transferee retained possession or control after the property was transferred ( 3439.04, subd. (b)(2)), whether the transfer was disclosed ( 3439.04, subd. (b)(3)), whether the debtor had been sued or threatened with suit before the transfer was made

( 3439.04, subd. (b)(4)), whether the value received by the debtor was reasonably equivalent to the value of the transferred asset ( 3439.04, subd. (b)(8)), and similar concerns. According to section 3439.04, subdivision (c), this amendment does not constitute a change in, but is declaratory of, existing law. (Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 834.)

The trial court found the Fairls acted with fraudulent intent, and that factual finding is unchallenged on appeal.

However, section 3439.08, subdivision (a), provides a defense to an action based on section 3439.04, subdivision (a). Section 3439.08, subdivision (a), states that a transfer that would otherwise be voidable as intentionally fraudulent under section 3439.04, subdivision (a), is not voidable against a transferee who took in good faith and for a reasonably equivalent value . . . . ( 3439.08, subd. (a), italics added.) Thus, a showing of good faith and reasonably equivalent value is all that is required to defeat a creditors action based on section 3439.04, subdivision (a). Obviously, if a transfer is made both in good faith and for a reasonably equivalent value, then the transfer is not a fraudulent transfer under section 3439.04, subdivision (b), either, since subdivision (b) applies only to transfers made without receipt of reasonably equivalent value. (Annod Corp. v. Hamilton & Samuels, supra, 100 Cal.App.4th at p. 1294.)

The same holds true with respect to . . . section 3439.05, which provides: A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation. If the debtor received reasonably equivalent value, the inquiry ends there. (Annod Corp. v. Hamilton & Samuels, supra, 100 Cal.App.4th at pp. 1294-1295.)

The determination whether a party is a good faith purchaser or encumbrancer for value ordinarily is a question of fact, on which the party asserting the defense has the burden of proof; on appeal, that determination will not be reversed unless it is unsupported by substantial evidence. (See Triple A Management Co. v. Frisone (1999) 69 Cal.App.4th 520, 536; In re Cohen (Bankr. 9th Cir. 1996) 199 B.R. 709, 718-719.)

The trial court made no finding the Martins failed to act in good faith, and refused plaintiffs request for an express finding that the Martins acted fraudulently. Rather, the court found only that the second prong of the exception to set-aside a fraudulent transfer was not satisfied because the Martins did not take for a reasonably equivalent value.^[5]

Substantial evidence supports the courts conclusion that the Martins did not purchase the property for a reasonably equivalent value. The purchase price of the house was either $234,000 (according to the written sales agreement), or $236,000 (as Dan Martin testified).

In contrast, the evidence of the value of the property ranged from $298,000 (the value from assessment and tax information appearing on an undated profile prepared by Chicago Title Company), to Dan Martins notes apparently prepared after a meeting with Gene and Karen Fairl indicating the house was APPRAISED @ 310,000. Martin testified that the value of the house was $303,000; the trial court found the parties seemed to at least accept the $303,000 value, but stated, it could almost be judicially noticed that the $303,000 figure was probably low, especially in light of evidence that sales of comparable homes were at prices ranging from $439,000 to $797,000.

Even assuming the higher sales price of $236,000, the difference between what the Martins agreed to pay and what the court characterized as a low value of $303,000 is $67,000.

Dan Martin testified he paid below market value for the house because the house needed a roof and paint, carpet, title [sic], [and] drywall. But he did not testify or otherwise establish the value of those repairs, and certainly failed to establish that their value was anything approaching $67,000. Whatever the amount, we cannot find the court erred in concluding that, even given the volume or the amount of the repairs performed a substantial gap between the price paid and the $303,000 estimate for the home prevented a finding that the Martins gave equivalent value for the property transferred to them by the Fairls.

Accordingly, there was no error.

DISPOSITION

The judgment is affirmed. Respondent shall recover its costs on appeal. (Cal. Rules of Court, rule 8.276(a)(2).)

SIMS , Acting P.J.

We concur:

BUTZ , J.

CANTIL-SAKAUYE , J.

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^[1] These figures are rounded to the nearest thousand dollars. Dan Martin testified the purchase price was actually $236,000, because he paid both the mortgage company and Gene Fairl an additional $1,000.

^[2]Our calculations indicate that the total of these elements should be closer to $237,000, but this inaccuracy is not material to our analysis.

^[3] Dan Martin testified at trial the Fairls moved to Nevada shortly after selling the property to the Martins.

^[4] Following Dan Martins testimony he discovered after the transaction that Gene Fairl used two separate social security numbers, the court directed plaintiffs counsel to contact the federal Department of Justice and to refer Gene Fairl for possible criminal investigation.

^[5] As a consequence, we do not address the parties respective arguments on appeal that the Martins did, or did not, take the property from the Fairls in good faith.