Nautilus, Inc. v. Yang

A creditor seeking to void a transfer under the Uniform Fraudulent Transfer Act loses if the transferee proves that it gave reasonably equivalent value for the transfer and lacked fraudulent intent and actual, not constructive, knowledge of the transferor’s fraudulent intent.  Under the Uniform Fraudulent Transfer Act, a conveyance made without receipt of reasonably equivalent value when the transferor should have known he couldn’t pay his actual or anticipated debts us a fraudulent transfer.  (Civ. Code 3439.04.)  However, the transferee may defend a creditor’s suit to recoup the fraudulent transfer by proving it took the transfer in good faith and for reasonably equivalent value.  (Civ. Code 3439.08(a).)  Good faith for these purposes means (a) without actual fraudulent intent, (b) without actual collusion with the debtor or active participation in the debtor’s fraudulent scheme, and (c) without actual knowledge of facts showing the transferor had fraudulent intent.  Constructive knowledge is insufficient to indicate lack of good faith.  Here, though the original owner (a judgment debtor) fraudulently transferred the property to his father, the lender that gave the father a reverse mortgage loan on the property after the title company missed the plaintiff-judgment creditor’s lien was able to prove that it gave reasonably equivalent value in good faith.  So the reverse mortgage loan and deed of trust were not voidable, and to the extent they paid off debt that had priority over the plaintiff’s judgment lien, the reverse mortgage lender was entitled to equitably subordinate its lien to those it paid off and thus acquire priority over the judgment lien.  The excess of the loan over the repaid senior debt, however, was junior to the judgment lien.

California Court of Appeal, Fourth District, Division 3 (Fybel, J.); April 21, 2017; 2017 WL 1422602


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