Dan Brecher
Counsel
212-286-0747 dbrecher@sh-law.comKey Contacts
Back
Here are some steps you can take to get paid if you have a good and substantial claim against a person or business, and you are told that even if you get a judgment you will have a hard time collecting because there are or will be no assets left upon which you could enforce the judgment.
Even if the debtor gets rid of all of the assets, you may still be able to collect on your claim if you can show that the debtor transferred a valuable asset for less than fair value for the purpose of avoiding paying debts or claims the debtor knew existed at the time of the transfer. Debtors who seek to hide or transfer assets often do so by transferring assets, or “selling” assets to relatives or friends who knew or should have known of the debtor’s effort to avoiding paying the debt. The proof of this is usually the fact that the terms of the transfer provide little or no payment to the debtor by the transferee, or defer payment for so long as to make it clear that this was not an arm’s length transfer to a bona fide purchaser for value.
Several years ago, I obtained a judgment against a stockbroker for $2.5 million after a FINRA panel awarded that amount to our client, a former customer of the broker. During the proceedings, when the broker saw the likelihood of our client obtaining a multi-million dollar award, the broker transferred ownership of a valuable New York City cooperative apartment to a member of the broker’s immediate family in exchange for the transferee’s agreement to pay the maintenance charges for the apartment for the next several decades.
Through discovery and investigation, we subsequently learned of the transfer and a court proceeding was successfully brought that voided the transfer as a fraudulent conveyance and directed that the customer’s judgment be paid through a public auction of the cooperative apartment.
While this cumbersome auction proceeding is required, and it will reduce the apartment sales proceeds by as much as 50% below market, it will provide a substantial return on the judgment, which continues to accrue interest at 9% annually.
This also serves as a lesson to debtors who seek to use a fraudulent conveyance to avoid paying a claim. After the apartment auction, the debtor will have lost 50% of the value of the auctioned apartment that could have been used as a part of an asset transfer for settlement of the brokerage customer’s judgment. Instead, after the auction expenses, the proceeds will not be nearly sufficient to pay the judgment, which will remain outstanding. Thus, the debt continues to remain subject to the former customer’s multi-million dollar judgment; that is being further enforced in actions against other real estate owned by the broker in another state.
Courts look first at the consideration received for the asset transfer and the identities and relationships, if any, between the debtor and the transferee, the timing, and the circumstances surrounding the transfer – such as whether a claim had been threatened or filed against the debtor prior to the transfer.
If you have a claim that has not yet been filed, it is key to notify the debtor, in writing, of the nature and amount of your claim and of your intention to pursue payment on the claim.
If you have any questions about the matter discussed above or would like to discuss other corporate law matters, please contact me or the Scarinci Hollenbeck attorney with whom you work.
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Related Posts
See all
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Author: Jesse M. Dimitro
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Author: Jesse M. Dimitro
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Author: Scarinci Hollenbeck, LLC
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
Author: Dan Brecher
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
Author: Ronald S. Bienstock
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
Author: Patrick T. Conlon
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
How To Overcome A Fraudulent Conveyance
Author: Dan Brecher
Here are some steps you can take to get paid if you have a good and substantial claim against a person or business, and you are told that even if you get a judgment you will have a hard time collecting because there are or will be no assets left upon which you could enforce the judgment.
Even if the debtor gets rid of all of the assets, you may still be able to collect on your claim if you can show that the debtor transferred a valuable asset for less than fair value for the purpose of avoiding paying debts or claims the debtor knew existed at the time of the transfer. Debtors who seek to hide or transfer assets often do so by transferring assets, or “selling” assets to relatives or friends who knew or should have known of the debtor’s effort to avoiding paying the debt. The proof of this is usually the fact that the terms of the transfer provide little or no payment to the debtor by the transferee, or defer payment for so long as to make it clear that this was not an arm’s length transfer to a bona fide purchaser for value.
Several years ago, I obtained a judgment against a stockbroker for $2.5 million after a FINRA panel awarded that amount to our client, a former customer of the broker. During the proceedings, when the broker saw the likelihood of our client obtaining a multi-million dollar award, the broker transferred ownership of a valuable New York City cooperative apartment to a member of the broker’s immediate family in exchange for the transferee’s agreement to pay the maintenance charges for the apartment for the next several decades.
Through discovery and investigation, we subsequently learned of the transfer and a court proceeding was successfully brought that voided the transfer as a fraudulent conveyance and directed that the customer’s judgment be paid through a public auction of the cooperative apartment.
While this cumbersome auction proceeding is required, and it will reduce the apartment sales proceeds by as much as 50% below market, it will provide a substantial return on the judgment, which continues to accrue interest at 9% annually.
This also serves as a lesson to debtors who seek to use a fraudulent conveyance to avoid paying a claim. After the apartment auction, the debtor will have lost 50% of the value of the auctioned apartment that could have been used as a part of an asset transfer for settlement of the brokerage customer’s judgment. Instead, after the auction expenses, the proceeds will not be nearly sufficient to pay the judgment, which will remain outstanding. Thus, the debt continues to remain subject to the former customer’s multi-million dollar judgment; that is being further enforced in actions against other real estate owned by the broker in another state.
Courts look first at the consideration received for the asset transfer and the identities and relationships, if any, between the debtor and the transferee, the timing, and the circumstances surrounding the transfer – such as whether a claim had been threatened or filed against the debtor prior to the transfer.
If you have a claim that has not yet been filed, it is key to notify the debtor, in writing, of the nature and amount of your claim and of your intention to pursue payment on the claim.
If you have any questions about the matter discussed above or would like to discuss other corporate law matters, please contact me or the Scarinci Hollenbeck attorney with whom you work.