By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Fraudulent Transfer Attorney
Here’s an interesting case taken up on appeal between a nursing home and the owner of a home who was accused of being part of a fraudulent transfer. The nursing home owners alleged that the defendant(s) violated the Uniform Fraudulent Transfer Act (UFTA), N.J.S.A. 25:2-25, with respect to the transfer of property owned by him to his children 1 ½ years prior to admission to their long term care facility.
At the time the parent executed the deed, he was ninety years old, but was in good physical and mental health, travelled alone overseas every six months, was in control of his own life, and made his own decisions. No one anticipated he would require nursing home care, and neither he nor his children had ever heard of the nursing home and none of them knew anything about the nursing home. The trial testimony was that the father was in good health, was “very sharp”, and had served in the military.
At the time the defendant executed the deed, the home was in poor condition and required extensive repairs. The children verbally agreed with a family friend that this friend would assume responsibility for the property’s improvements, maintenance, and repair upon the transfer of title to the home by the children of the friend.
After the transfer to the family friend, dad continued living in the home until he became ill and was admitted to a nursing home. The Hudson County Division of Welfare subsequently determined that the father was financially eligible for institutional Medicaid benefits. However, the Division imposed a penalty of 7 months, due to his transfer of the property for less than fair market value within the five-year lookback period. Instead of discharging the father from the nursing home, the operator allowed him to stay. At the time he died his outstanding nursing home bill was $332,460.60.
In the litigation that was filed, the judge found that the nursing home did not meet its burden of proving there was a fraudulent transfer under N.J.S.A. 25:2-25 (a) or (b). The judge found credible the testimony of the parties about the circumstances surrounding the transfer years earlier. The judge emphasized that the transfer occurred one and one-half years prior to the father’s admission to the nursing home, no one anticipated at the time of the transfer that he would be facing a nursing home stay, and the reasons for the title transfer were totally unrelated to his subsequent admission into a nursing home.
The judge noted there were four badges of fraud alleged by the nursing home in the case: (1) the transfer of the property was to an insider (a child); (2) the debtor, retained possession or control of the property through a life estate; (3) the transfer was of substantially all of the debtor’s assets; and (4) the value of consideration for the transfer, one dollar, was not reasonably equivalent. However, the judge concluded that these badges of fraud did not compel a finding of fraudulent transfer.
On appeal, the nursing home contended that the defendants violated the UFTA (Universal Fraudulent Transfer Act). The appellate division stated in its decision “the general rule is that findings by a trial court are binding on appeal when supported by adequate, substantial, credible evidence. Deference is especially appropriate when the evidence is largely testimonial and involves questions of credibility.” The trial court enjoys the benefit, (which an Appellate Court does not), of observing the parties’ conduct and demeanor in the courtroom and in testifying. Through this process, trial judges develop a feel of the case and are in the best position to make credibility assessments. As a factfinder, the judge can believe all, some, or none of a witness’ testimony. The appellate decision will defer to the credibility assessments unless they are manifestly unsupported by the record. Here there’s no reason to disturb the judge’s ruling. The Appellate Judges were satisfied that the record amply supported the judge’s factual and credibility findings.
The Uniform Fraudulent Transfer Act (UFTA) provides as follows:
A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation
- With actual intent to hinder, delay, or defraud any creditor of the debtor; or
- Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:
- Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
- Intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtors ability to pay as they become due.
The purpose of the UFTA is to “prevent a debtor from placing his or her property beyond a creditor’s reach” to cheat a creditor and to “allow the creditor to undo the wrongful transaction so as to bring the property within the ambit of collection.”
To determine if a conveyance constitutes a fraudulent transfer, courts must engage in a two-part test. First, the court must inquire “whether the debtor (or person making the conveyance) has put some asset beyond the reach of creditors which would have been available to them” if there had been no conveyance. Second, the court must inquire “whether the debtor transferred the property with intent to defraud, delay, or hinder the creditor.” This test requires the court to consider the totality of the circumstances in each case.
The party seeking to set aside a fraudulent transfer bears the burden of proving the debtor had the actual intent to defraud, delay, or hinder the creditor. To determine a debtor’s actual intent, courts should consider, among other factors, whether:
- The transfer or obligation was to an insider;
- The debtor retained possession or control of the property transferred after the transfer;
- The transfer or obligation was disclosed or concealed;
- Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
- The transfer was of substantially all the debtor assets;
- The debtor absconded;
- The debtor removed or concealed assets;
- The value or the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
- The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
- The transfer occurred shortly before or shortly after a substantial debt was incurred; and
- The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
Where several badges of fraud, as enumerated in N.J.S.A. 25:2-26, surround a transaction, a strong inference of fraud arises, which a party can rebut using “strong, clear evidence” of a sufficient explanation.
In this case, factors a, b, e, and, arguably, factor h were found to apply. The father transferred the property to an insider; he retained possession of the property after the transfer; the property appeared to be his only valuable asset; and he did not receive fair market value for the property. However, these badges of fraud did not establish that the father transferred the property with the actual intent to hinder, delay, or defraud the nursing home or any other creditor, N.J.S.A. 25:2-25(a), or reasonably believed or should have believed he would incur debts beyond his ability to pay.
To the contrary, the evidence confirmed that the father’s intent was not to defraud creditors, but to relieve himself of the responsibilities associated with owning it and transferring it to his daughter, who was paying all of the bills. What the daughter did with the property after the transfer and her dealings are irrelevant to whether there was a fraudulent transfer by her father years earlier to her!
Thus the court agreed that the nursing home failed to prove the father made the transfer with the actual intent to defraud, delay, or hinder it, or intended to incur, or believed or reasonably should have believed he would incur a nursing home debt he could not pay.
To discuss your NJ Fraudulent Transfer matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org. Please ask us about our video conferencing consultations if you are unable to come to our office.