Fraudulent Transfer Litigation

Learn About New Jersey Laws on Fraud and the New Jersey Fraudulent Transfer Act

Are you involved in a case where fraud is being alleged?

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Introduction: Background Information You Need to Know on the Law of Fraud in New Jersey

Fraud is a term used by many but what does it really mean?

Legal fraud has five elements. Stated simply, they are

  1. a misrepresentation of an existing or past fact;
  2. knowing it to be false;
  3. with the intention that someone rely on the misrepresentation;
  4. the person did in fact rely on the truthfulness of the misrepresented fact; and
  5. this person suffered economic damage as a result.

Watch Our Informative Video on the Law of Fraud in NJ

FRAUDULENT TRANSFERS UNDER THE NJ FRAUDULENT TRANSFER ACT

New Jersey has laws on transfers of money when a person or business is broke, near broke or technically insolvent, particularly if the transfer is intended to defraud creditors. The law(s) is called the NJ Uniform Fraudulent Transfer Act (“UFTA”). The UFTA lets creditors ultimately challenge and void the transfer of money, property or assets made by a debtor if the transfer has the effect of placing the money, property or assets out of the reach of present and sometimes future creditors.

N.J.S.A. 25:2-25 and N.J.S.A. 25:2-27 are the central provisions of the Fraudulent Transfer Act. These statutes make the following types of transfers fraudulent under New Jersey law:

  1. A transfer made with the actual intent to defraud one’s creditors;
  2. A transfer made by a business without receiving a reasonably equal value in exchange and which leaves the business with money, property and assets worth less than their debts;
  3. A transfer without receiving a reasonably equal value in exchange, knowing (or should have known) at the time of the transfer that he/she would incur debts in the future beyond his/her ability to pay them.

THE KEY CONCEPTS IN THE NJ FRAUDULENT TRANSFER LAW TO UNDERSTAND ARE CONSIDERATION AND”REASONABLY EQUIVALENT VALUE”

The term “value” is critical when evaluating whether or not there has been a fraudulent transfer in New Jersey. The law also has adopted the concept of “reasonably equivalent value”.

FRAUDULENT TRANSFER: ACTUAL INTENT TO PROVE “FRAUD”

Under the law, a fraudulent act exists when a debtor transfers ownership in property to another with the actual intent to hinder, delay, or defraud a creditor of the debtor.” Proving the fraudulent intent of the debtor is necessary under one provision of the law.

Factors to Be Considered to Establish “Fraudulent Intent” Under the NJ Fraudulent Transfer Act

Actual intent can be difficult to prove and “often must be established through inferential reasoning taken from the circumstances surrounding the allegedly fraudulent act.” Let’s face it, few people will admit with a straight face that they transferred valuable property for nothing out of the goodness of their heart. If that were the case, they’d claim a charitable contribution under the IRS tax code. Given this reality, New Jersey has evaluated “actual intent” using the following factors. Note that not all factors have to be found to exist before a violation of the statute exists.

  1. The transfer or obligation was to a person or business relationship close to the debtor;
  2. The debtor in some real or indirect way maintained actual possession or control of the property transferred after the transfer;
  3. The transfer was disclosed or concealed from the creditor and others;
  4. Before the transfer the debtor had been sued, threatened with suit or was broke;
  5. The transfer was of substantially all the debtor’s assets;
  6. The debtor has secreted themselves or is “suddenly unavailable”;
  7. The debtor relocated to another location or concealed the assets;
  8. The value of the property or asset given back by the debtor was not reasonably equal to the value of the property or asset transferred or the amount of the debt incurred;
  9. The debtor was insolvent or became insolvent after the transfer was made or the debt was incurred;
  10. The transfer occurred before or shortly after a substantial debt was incurred by the debtor; and
  11. The debtor transferred the essential assets of his/her business to a creditor with a secured or unsecured interest who then transferred the assets to an insider of the debtor.

In NJ, our courts will consider any of the above factors to establish a fraudulent transfer. As previously stated, not all eleven factors must exist to successfully bring a case.

What Constitutes Actionable “Fraud”

One Must Know of the Falsity of the Fact(s) for Legal Fraud to Exist in New Jersey

Legal fraud requires that the person who made the statement actually knew of its falsity and that he or she intended that you rely on it.

For a Commercial and Business Fraud Claim, There Must Be Reasonable Reliance Upon the Fraudulent Information

If someone sues you claiming legal fraud, he or she must show that they relied on the fraudulent representation. In business fraud, our courts have rejected claims for fraud when a buyer conducts its own independent investigation. For example, a claim of fraud was rejected when a buyer conducted an independent investigation of the income generated by the business prior to the sale. Similarly, in a case involving a foreclosure judgment, a fraud claim was rejected because the plaintiff conducted its own independent investigation of the foreclosure prior to purchasing the mortgage from the bank.

Some NJ courts, however, have found fraud when an injured party failed to undertake its own investigation into a matter even though they were free to do so. However, in these cases, the courts looked at the very unique facts of the case.

What is Equitable Fraud; Understanding the Difference Between Legal Fraud and Equitable Fraud in NJ

Unlike legal fraud, equitable fraud does not require “actual knowledge” of a false representation. For a claim of equitable fraud to exist, a person needs only to show:

  1. a misrepresentation of an existing or past fact;
  2. relied upon by the other party;
  3. to his or her detriment.

But here is the crucial difference; a person suing for equitable fraud cannot recover money damages, only equitable relief (i.e., rescission of the contract, return of deposit monies in escrow, etc.).

Fraudulent Concealment of a Known Fact Can Be Legal Fraud in New Jersey

If you know about an important fact but fail to disclose it, you can be held liable for fraudulent concealment. A person may be liable for fraudulent concealment if they fail to disclose material facts that he/she have knowledge of and a duty to disclose. New Jersey courts have held that withholding the truth (keeping a known material fact secret to yourself) when it should have been disclosed is the equivalent of misrepresenting a known fact.

Fraudulent Concealment in Matters of New Jersey Business and Commercial Sales

In a business transaction or sale, the elements of fraudulent concealment are: “the deliberate concealment or non-disclosure of an important fact or a material defect known to exist by the seller and not readily observable to the buyer, with the buyer relying upon the seller’s concealment to his or her economic detriment”.

The Negligent Misrepresentation of a Fact Thought to Be True But Later Found to be Untrue Can Be Fraud

If someone negligently provides factual information which is thought to be accurate but later is found to be inaccurate and that information was reasonably relied upon, negligent misrepresentation can exist. To prevail, the injured party must demonstrate that it was reasonable for him or her to rely on the information and that he/she actually relied on the inaccurate information. In addition, a prospective plaintiff must demonstrate that the false information was the cause of his/her economic injury.

TESTIMONIAL
I consulted with Mr. Niemann following a recommendation from an associate in Brick, New Jersey. I was told that Mr. Niemann would be an excellent person to discuss an investment opportunity which was represented to me as very profitable. Mr. Niemann met with me promptly and reviewed the information which was given by the promoter. After having considered the promotional information, Mr. Niemann cautioned me against the investment. He requested a four-way conference be set up so that he could meet face to face, eye to eye with the promoter of this opportunity. After several hours of intense questioning and discussion, Mr. Niemann courteously and professionally concluded the meeting, whereupon he immediately told me not to invest a single penny into this scam as I would lose my investment. At the time, I was looking to invest several hundred thousand dollars. Thank God I listened to Mr. Niemann.

Since our meeting, I have learned that the deal was, in fact, a scam and that I would have lost my entire investment. The straight talking highly investigative nature of Mr. Niemann’s questioning and insight coupled with his significant past business experience was of invaluable help to me.
Scott Buongiovanni Freehold, New Jersey

 

Who Has the Burden of Proof to Establish That a Fraudulent Transfer Occurred in NJ

If you believe a debtor of yours has perpetrated a fraudulent transfer, you have the burden of proving that the transfer was intentionally fraudulent. This burden of proof requires that an experienced and capable NJ business law attorney evaluate the facts of your case. If you are a debtor being sued or a creditor who has been defrauded, contact Fredrick P. Niemann, Esq. at (855) 376-5291 or email him at fniemann@hnlawfirm.com for a consultation to discuss and analyze your individual case.

 

NJ Fraudulent Transfer and Law on Fraud Attorney serving these NJ Counties:

Monmouth County, Ocean County, Essex County, Cape May County, Camden County, Mercer County, Middlesex County,
Bergen County, Morris County, Burlington County, Union County, Somerset County, Hudson County, Passaic County