ROBERT H. JACOBVITZ, Bankruptcy Judge.
THIS MATTER is before the Court on the Chapter 7 Trustee's Motion for Summary Judgment on Counts 1-3 and 6-7 of the Complaint (the "Motion"). See Docket Nos. 19 & 1. Trustee seeks to avoid and recover the transfers under 11 U.S.C. § 548 and applicable state law as constructive fraudulent transfers and as actual fraudulent transfers.
The Court will grant in part and deny in part the Trustee's Motion for Summary Judgment. The Court will grant summary judgment on the issue of when the transfer occurred for the purpose of § 548(d). The Court will also grant summary judgment on the issue of whether Defendant's promise to take care of the Debtor constitutes value under § 548. The Court denies summary judgment on the issue of whether the transfer amounted to constructive fraud or actual fraud under § 548 and applicable state law. The Court deems the facts as established for trial as set forth below.
14. On May 1, 2014, the Lopez Firm filed a Notice of Attorney's Charging Lien in the Divorce Case asserting a charging lien in the amount of $60,082.77, plus a late fee on the unpaid amount at an 18% per annum rate (the "Lopez Lien"). Trustee's Statement of Undisputed Material Facts, ¶ 31.
29. On September 7, 2016, 177 days before Debtor filed her voluntary petition, Defendant recorded the quitclaim deed in the Guadalupe County Clerk's Office as instrument number 201663843.
Summary judgment is appropriate when the moving party shows that there is no genuine dispute as to a material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The purpose of summary judgment is to streamline litigation and avoid unnecessary cost at trial. Mitchell v. Zia Park, LLC, 842 F.Supp.2d 1316, 1321 (D.N.M. 2012) ("Principal purposes of summary judgment include streamlining litigation and saving needless time and expense by isolating and disposing of purely legal issues and factually unsupported claims and defenses."); See Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986) ("Summary judgment procedure is properly regarded . . . as an integral part of the Federal Rules as a whole, which are designed to secure the just, speedy and inexpensive determination of every action."). The moving party "bears the initial responsibility of informing the district court of the basis for its motion, and . . . demonstrat[ing] the absence of a genuine issue of material fact." Id. at 323.
The non-moving party "must bring forward specific facts showing a genuine issue for trial as to those dispositive matters for which it carries the burden of proof." Kannady v. City of Kiowa, 590 F.3d 1161, 1169 (10th Cir. 2010). The non-moving party "may not rest upon mere allegation or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, (1986). In opposing summary judgment, the Defendant offered bald declarations from the Debtor, the Defendant and a third-party familiar with the proceedings, Mr. Kelly (the "Declarations"). The declarations offered by the Defendant do not comply with 28 U.S.C. § 1746, which require that the declarant to declare the writing is true by stating, "I declare (or certify, verify, or state) under penalty of perjury that the foregoing is true and correct. Executed on (date)." However, Fed. R. of Civ. P. 56 gives the Court the discretion to consider facts in an inadmissible form if the fact could be presented at trial in an admissible form. The Court will therefore consider the Declarations offered by the Defendant regarding the transfer of the Santa Rosa Property.
In determining summary judgment, the Court construes all facts and reasonable inferences in the light most favorable to the non-moving party. Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir. 1990) ("we examine the factual record and reasonable inferences therefrom in the light most favorable to the party opposing summary judgment."). The Court "asks whether reasonable jurors could find by a preponderance of the evidence that the plaintiff is entitled to a verdict—whether there is [evidence] upon which a jury can properly proceed to find a verdict for the party producing it, upon whom the onus of proof is imposed." Anderson, 477 U.S. at 252.
The Trustee asserts that the transfer of the Santa Rosa Property is avoidable due to constructive fraud and/or actual fraud under 11 U.S.C. § 548 of the Bankruptcy Code and applicable state law. The Defendant maintains he is a bona fide purchaser of the Santa Rosa Property. As there are genuine issues of material facts on the issues of whether the transfer of the Santa Rosa Property constitutes constructive and/or actual fraud under 11 U.S.C. § 548 and applicable state law, the Court will deny in part the Trustee's motion for summary judgment. The Court will grant summary judgment on the threshold issue of when the Santa Rosa Property was transferred for the purpose of the avoidability action under § 548. The Court will also grant summary judgment on the issue of whether Defendant's promise to take care of the Debtor constitutes value under § 548.
As a threshold issue, the Trustee argues that the Santa Rosa Property was transferred on September 7, 2016, when the deed was recorded in the Guadalupe County Clerk's Office. The Defendant asserts that the transfer occurred when the quitclaim deed was signed and notarized on May 19, 2014.
Under the Bankruptcy Code, "transfer" is defined as ". . . each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with — (i) property; or (ii) an interest in property." 11 U.S.C. § 101(54)(D). The definition of "transfer" is interpreted broadly to include "any transfer of an interest in property." In re Veretto, 131 B.R. 732, 736 (Bankr. D.N.M. 1991).
In addition, § 548(d) states "a transfer is made when such transfer is so perfected that a bona fide purchaser from the debtor against whom applicable law permits such transfer to be perfected cannot acquire an interest in the property transferred that is superior to the interest in such property of the transferee." 11 U.S.C. § 548(d)(1). The purpose of § 548(d) is "to prevent fraudulent transfers from becoming impregnable to attack by keeping them secret until the limitation period has lapsed. In effect, a transfer is not made for the purposes of section 548(d)(1) until it becomes known or discoverable by the exercise of reasonable diligence." Butler v. Lomas & Nettleton Co., 862 F.2d 1015, 1019 (3d Cir. 1988). New Mexico state law is the applicable law to determine when the transfer is perfected against a later acquired interest.
New Mexico state law provides, "No deed, mortgage or other instrument in writing not recorded in accordance with Section 14-9-1 NMSA 1978 shall affect the title or rights to, in any real estate, of any purchaser, mortgagee in good faith or judgment lien creditor, without knowledge of the existence of such unrecorded instruments." N.M. Stat. Ann. § 14-9-3. Section 14-9-1 NMSA 1978 states, "All deeds, mortgages, . . . and other writings affecting the title to real estate shall be recorded in the office of the county clerk of the county or counties in which the real estate affected thereby is situated." As such, under New Mexico state law, a transfer is perfected when it is recorded with the county clerk of the state in which the real estate is situated. See In re Veretto, 131 B.R. 732, 737 (Bankr. D.N.M. 1991) ("New Mexico law is clear: it is upon recordation that a transfer of an interest in real property is perfected."); In re Shannis, 229 B.R. 234, 237 (Bankr. M.D. Fla. 1999) ("for fraudulent conveyance purposes under § 548, the date the Property was initially transferred to Junior occurred on the date the deed was recorded."); In re Wolf, No. 15-31477-HCM, 2016 WL 4940198, at *23 (Bankr. W.D. Tex. Sept. 15, 2016) ("The dates of the execution and delivery of the unrecorded deeds . . . are not the dates of "transfer" for fraudulent conveyance purposes.").
In this case, the Debtor signed and notarized the quitclaim deed on May 14, 2014 and deeded the real property to her brother. The deed was not recorded with the Guadalupe County Clerk until September 7, 2016. Under § 548(d) the transfer did not occur until recordation. September 7, 2016 is 177 days prior to the Debtor's filing of bankruptcy and therefore within the two-year look-back period under § 548(a).
The Trustee argues that the transfer of the Santa Rosa Property is avoidable under § 548(a)(1)(B)'s constructive fraud provision. The Trustee asserts that the consideration in the form of an agreement to allow the Debtor to live rent free and care for the Debtor is not reasonably equivalent value for the Santa Rosa Property. The Trustee also argues that the Debtor was insolvent or became insolvent due to the transfer of the Santa Rosa Property. The Defendant argues that his consideration was reasonably equivalent value and that the Debtor was not insolvent when the Santa Rosa Property was transferred.
Unlike the analysis for actual fraud, to determine constructive fraud, the Court does not inquire into the Debtor's subjective intent. Instead, under § 548(a)(1)(B) the Trustee may avoid any transfer if the Debtor:
11 U.S.C. § 548(a)(1)(B).
The Trustee argues the Debtor received less than reasonably equivalent value for the Santa Rosa Property because the consideration offered was a promise that the Debtor could live rent free at the Santa Rosa Property and that the Defendant would take care of her if she was unable to take care of herself. Defendant disagrees. Defendant also asserts that the Court should take into account the fact that the Debtor could not afford to maintain or pay the taxes on the property.
"Whether the transfer is for `reasonably equivalent value' under § 548(a)(2) in every case is largely a question of fact." In re Wes Dor, Inc., 996 F.2d 237, 242 (10th Cir. 1993) (quoting, 4 Collier on Bankruptcy ¶ 548.09, at 548-112 (15th ed.1993)). Determining reasonably equivalent value is not formulaic, instead the Court looks to the facts and circumstances of the case. In re Bulmer, No. AP 15-50153, 2017 WL 562436, at *4 (Bankr. S.D. Ind. Feb. 10, 2017) (" "There is no precise mathematical formula involved in determining reasonably equivalent value; rather it is a "common sense" inquiry that considers the circumstances of each case.").
The Tenth Circuit Bankruptcy Appellate Panel described a bankruptcy court's analysis as
In re Expert S. Tulsa, LLC, 534 B.R. 400, 413 (B.A.P. 10th Cir. 2015), aff'd, 842 F.3d 1293 (10th Cir. 2016); see also Barber v. Golden Seed Co., 129 F.3d 382, 387 (7th Cir. 1997) ("The test used to determine reasonably equivalent value in the context of a fraudulent conveyance requires the court to determine the value of what was transferred and to compare it to what was received.").
Defendant's promise that he would take care of her if she was unable to take care of herself does not constitute value for purposes of determining whether the Debtor received reasonably equivalent value in exchange for transferring the Santa Rosa Property to the Defendant. The Code defines value in the context of fraudulent transfers as "property, or satisfaction or securing of a present or antecedent debt of the debtor, but does not include an unperformed promise to furnish support to the debtor or to a relative of the debtor." 11 U.S.C. § 548(d)(2) (emphasis added). The Defendant is the Debtor's brother. Under § 548(d)(2), his promise to furnish her with support does not constitute value.
Therefore, at most, the consideration the Debtor received in exchange for the Santa Rosa property was Defendant's agreement to allow her to live at the property rent free. While the Court is skeptical about whether that constitutes reasonably equivalent value, or even whether an oral promise to rent real property on a long-term basis is enforceable, the Court will allow Defendant to put on evidence of value at trial. The Trustee has provided no evidence to the Court of the market value of the Santa Rosa Property or the rental value of the property. Nor has the Trustee argued that the alleged oral lease is unenforceable under the statute of frauds.
The Court also notes that any agreement by Defendant to maintain or pay the taxes on the Santa Rosa Property does not constitute value received by the Debtor in exchange for her transfer of the property to Defendant. After the transfer, the Defendant owned the property and provided benefit to himself by maintaining the property and paying taxes on it.
The Trustee argues that the Debtor was insolvent on September 7, 2016. However, the facts established for purposes of summary judgment do not establish the value of the Debtor's assets upon the transfer of the Santa Rosa Property to the Defendant or immediately after the transfer.
The Trustee asserts that the circumstantial evidence regarding the badges of fraud is overwhelming enough to allow the Court to find actual fraud at summary judgment. The Trustee points to the fact that the transfer was to an insider for no consideration; the Debtor continues to live at and control the property; the transfer was concealed for two years until it was recorded with the Guadalupe County Clerk; the transfer occurred while Debtor was in the midst of a contentious and prolonged Divorce Case; the Santa Rosa Property was the largest asset of the Debtor; the Debtor concealed her interest in the Santa Rosa Property; the Debtor received less than reasonably equivalent value; the Debtor was insolvent at the time of the Transfer; and the quitclaim deed was signed and notarized at the time the Debtor incurred substantial attorney's fees and was recorded shortly after New Mexico Court of Appeals entered a memorandum opinion ruling against the Debtor.
The Defendant maintains that he is a bona fide purchaser of the Santa Rosa Property who paid reasonably equivalent value. He argues that there was consideration in the form of a verbal agreement allowing the Debtor to live rent free at the property, and a promise to care for the Debtor if she is unable to care for herself. Defendant also argues that the Transfer was not concealed because the reason the quitclaim deed was not recorded when it was executed was because the Debtor had not yet received the Special Warranty Deed from her ex-husband. In addition, Defendant maintains, that the Debtor does not control the property but that she only collects rent as his agent and any improvements done with the rental income were done at his cost. Under the Code, the Trustee bears the burden of proof to show that the transfer of the Santa Rosa Property was made with actual fraud and is thus avoidable. § 548(a) states:
11 U.S.C. § 548(a)(1)(A).
Tracy Lynne Zubrod, Tr. v. Denise L. Kelsey, Scott Barry Kelsey (In re Denise L. Kelsey, Scott Barry Kelsey), 270 B.R. 776, 782 (B.A.P. 10th Cir. 2001). Under New Mexico state law the Court can consider similar factors to determine actual fraud. See N.M. Stat. Ann. § 56-10-18B.
Actual fraud depends on the Debtor's mental state, therefore summary judgment ordinarily is inappropriate on the issue of whether the Debtor had actual intent to hinder, delay, or defraud. See Citizens Bank of Clearwater v. Hunt, 927 F.2d 707, 711 (2d Cir. 1991) (" The intent of the parties to the transaction is purely a question of fact . . . Ordinarily, such issues are inappropriate for summary judgment.") (internal citations and quotations omitted). In re Canyon Sys. Corp., 343 B.R. 615, 636 (Bankr. S.D. Ohio 2006) ("Because the Debtor's subjective intent is in issue, summary judgment is generally not an appropriate mechanism for adjudication of an actual fraudulent transfer claim." In re Tenorio, 2018 WL 989691, at *12 (B.A.P. 9th Cir. Feb. 8, 2018) ("This is the unusual case in which summary judgment on an actual intent fraudulent transfer claim was proper. Normally, it is error to grant summary judgment on an issue of intent.").
Although, the Trustee has established facts that indicate the existence of several badges of fraud thereby suggesting fraudulent intent, the Court exercises its discretion to give the Defendant the opportunity to present testimony on the issue of the Debtor's intent. The Court will deny summary judgment on this issue.
Fed. R. Civ. P. 56(g) made applicable to this adversary proceeding by Fed. R. Bankr. P. 7056 provides:
Fed. R. Civ. P. 56(g). In the Motion, the Trustee requested that in the event the Court did not grant summary judgment, that it enter an order establishing material facts not in genuine dispute for trial. The Defendant did not object to the Court entering such an order. And in any event, the Court has determined it is appropriate to treat as established in this adversary proceeding, including for purposes of trial, each and every enumerated fact set forth in the section of this opinion entitled "Facts Not in Genuine Dispute."
The facts not in genuine dispute set forth in the section of this opinion entitled "Facts Not in Genuine Dispute" are deemed established for all purposes in this adversary proceeding, including for purposes of trial. The Court grants the Chapter 7 Trustee summary judgment on the threshold issue of when the transfer occurred and concludes that it occurred within the two-year look back period under § 548 (a). The Court also grants the Trustee summary judgment on the issue of whether Defendant's promise that he would take care of the Debtor if she was unable to take care of herself constitutes value under § 548. The Court denies the Chapter 7 Trustee's motion for summary judgment as to all other issues. The Court will enter a separate order consistent with this opinion.
