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Fraudulent Conveyances of Real Estate in New York

Posted on 24th May 2016

We sometimes have requests by clients and potential clients to review proposed real estate transactions to ensure there is no issue with a fraudulent conveyance. A fraudulent conveyance can occur when somebody transfers payment as an attempt to evade creditors or transfers property that is the subject of a legal judgment or a pending legal judgment. New York law allows judgments to act as a lien on real property for ten years, and it can be extended for another ten years by the creditor. In this circumstance, owners of real property sometimes want to transfer property to prevent the possibility of a twenty-year lien. 

New York Law

Fraudulent transfers are governed by New York Debtor and Creditor Law, Article 10. Any transfer of property to evade a judgment creditor is a fraudulent transfer under the law, and the transfer can be rescinded in a court action. One thing a court will consider when determining whether a transfer is fraudulent is the value of the consideration offered in exchange. When there is not an equal value transfer, a transaction appears to be fraudulent.

By way of example, let us assume a married couple owns their home jointly. The wife is then sued for a debt, and a judgment is entered against her. Before the judgment is entered by the Court, the wife transfers her half interest in the home to her husband, so that now the home is solely in his name. She receives no compensation for the transfer from her husband. This is likely a fraudulent conveyance, and it could be set aside by the court if a judgment creditor brings a court action. The court action has to be brought in the same county that the property is located in, and if the judgment creditor succeeds, the house goes back to being in the name of both parties.

Other Common Situations

Not all situations are obvious, like the one given above. Sometimes the person who transferred the property is not even the defendant in a civil action brought by a judgment creditor; instead, the case is brought by the person to which the property was transferred. Anytime a judgment creditor accuses someone of making a fraudulent conveyance, the creditor must be able to prove actual intent to evade the judgment on the part of the person who transferred the property. This becomes an issue when a person receives property upon the death of another, if the person inheriting the property was unaware that a judgment was entered against the deceased at some prior point. If the creditor cannot prove that the inheritor was aware of the judgment, then intent cannot be proved.

Any situation involving alleged fraudulent conveyance of property is different, and no two situations resolve the same. If you are subject to a judgment or think you might be sued in the future, you should consult an experienced real estate attorney. Contact us today at (718) 347-6800.