Often I get asked if it is possible to shield real property from creditors. The law that protects creditors from fraudulent transfers is the “Uniform Fraudulent Transfer Act”
Since 1987, the Uniform Fraudulent Transfer Act has provided unsecured creditors remedies against debtors who make transfers of their properties or incur obligations against their property for the sole purpose of placing assets beyond the reach of the creditors. Factors considered in determining whether a transaction by an owner is “fraudulent” include:
- Whether the transfer was to an insider;
- If the debtor had retained possession or control of the property transferred;
- Whether the transfer or obligation was disclosed or concealed;
- Whether the debtor was sued or threatened with suit before the transfer was made or the obligation incurred;
- Whether the transfer was substantially all of the debtor’s assets;
- If the debtor has absconded (i.e., run off with the money);
- If the debtor had removed or concealed assets;
- Whether the value of consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
- Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation incurred; and
- Whether the transfer occurred shortly before or shortly after a substantial debt was incurred.
There is a case in California where the creditor established all of the criteria; but, failed to file a lawsuit within seven years after the transfer was made. Consequently, if you are a creditor, make sure you run property on all real property being used as collateral. Don’t depend on the county recorder to provide you with notice!