Monday, November 30, 2009
Court Rejects Fraudulent Transfer Claim for Lack of Value
By STEVEN M. ELLIS, Staff Writer
A title insurance company cannot set aside a Fresno man’s transfer of his interest in a home to his girlfriend in order to keep a lien from being placed on it, but can proceed on a theory that the man intended to retain an equitable interest, the Fifth District Court of Appeal has ruled.
The court held Tuesday that a trial judge correctly threw out Fidelity National Title Insurance’s fraudulent transfer action against Gordon Schroeder because no recoverable value remained after deducting existing encumbrances and his homestead exemption, but remanded to allow the company to argue its claim that the girlfriend held the property for him in trust.
Schroeder transferred his interest to co-owner Toni Schroeder—his girlfriend—in 2007 for no consideration upon learning that Fidelity was about to file an abstract of judgment as a lien against the property. The company paid over $73,000 to Schroeder’s former wife in 2004 after failing to discover the existence of a prior judgment lien arising from a 1996 award against Schroeder for failing to pay court-ordered spousal support.
Gordon and Toni Schroeder purchased the property as “joint tenants” under a deed that listed them as husband and wife, even though they were not legally married, and obtained title insurance from Fidelity when they refinanced a loan on the property in 2002.
After paying off the ex-wife and obtaining an assignment of her rights, Fidelity inadvertently released the judgment lien, but later told Gordon and Toni Schroeder during litigation over the payout that it would seek a new lien after discovering the pair were not married. However, days later the two executed a deed conveying the property to Toni Schroeder alone.
Fidelity then sought a declaration that the pair were putative spouses and that Fidelity was entitled to collect from both Gordon Schroeder’s separate property and Toni Schroeder’s quasi-community property, and sought to avoid the 2007 conveyance under the Uniform Fraudulent Transfer Act. The act allows defrauded creditors to reach property in the hands of a transferee if the debtor made the transfer intending to “hinder, delay, or defraud any creditor.”
Fidelity also requested a determination that Toni Schroeder held the property in a constructive trust for the company or that she held Gordon Schroeder’s equitable interest in a resulting trust, allowing its judgment lien to attach, but Fresno Superior Court Judge Donald R. Franson Jr. rejected all four causes of action.
Franson found that Gordon Schroeder intended to defraud Fidelity, but declined to set the transfer aside because the company failed to show injury where there was no value in the property after deducting existing encumbrances and Schroeder’s $50,000 homestead exemption. The judge denied relief on the constructive trust and resulting trust causes of action because Fidelity failed to claim it was entitled to a one-half interest in the property as opposed to a judgment lien on half of it.
In an opinion by Justice Stephen Kane, the Court of Appeal agreed that Fidelity could not maintain its fraudulent conveyance action, but said Franson erred in denying relief under the resulting trust cause of action and in failing to make factual findings regarding Schroeder’s intent. While a constructive trust defeats or prevents the wrongful acts of a transferor, a resulting trust arises by operation of law where circumstances show the transferor did not actually intend to convey a beneficial interest.
“Fidelity’s complaint alleged that Gordon’s conveyance of the Fresno property to Toni was intended only as a transfer of legal title, which she held as trustee for Gordon, and that Gordon retained his equitable one-half interest in the property,” Kane wrote.
“[A]llowing a judgment creditor to maintain a resulting trust cause of action in a case such as this one would merely apply a recognized legal and factual basis for concluding that the debtor actually retained an equitable interest to which a judgment lien may attach.”
Remanding for factual findings on Gordon Schroeder’s intent behind the 2007 conveyance, Kane said that if Toni Schroeder held Gordon Schroeder’s one-half interest as a resulting trust for his benefit, Fidelity’s judgment lien would attach to Gordon Schroeder’s equitable interest effective on the date when Fidelity recorded its abstract of judgment.
Presiding Justice James A. Ardaiz and Justice Herbert Levy joined Kane in his opinion.
The case is Fidelity National Title Insurance Company v. Schroeder, 09 S.O.S. 6789.
Copyright 2009, Metropolitan News Company