Case No. 04 B 43773, Adv. No. 06 A 1693.United States Bankruptcy Court, N.D. Illinois, Eastern Division.
May 24, 2007
MEMORANDUM OPINION
JOHN SCHWARTZ, Bankruptcy Judge
This matter comes before the court on the motion filed by plaintiff, Allan J. DeMars, as Trustee of the Chapter 7 estate of Adrian Pop (“Trustee”), for summary judgment against Corneliu Danciu and Maria Danciu (“Defendants”). For the reasons set forth herein, the motion will be granted in part.
Jurisdiction is properly in this court pursuant to 28 U.S.C. § 1334(b) and this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (E), (II) and (O).
The underlying bankruptcy proceeding was commenced on November 24, 2004 by the filing of a voluntary petition for relief by Adrian Pop (“Debtor”) under chapter 7 of the United States Bankruptcy Code, 11 U.S.C. §§ 101, et seq. This proceeding was commenced by the Trustee on November 12, 2006. No attorney has ever appeared for the Defendants. This motion for summary judgment was filed on February 8, 2007 with a Statement of Facts pursuant to Local
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Bankruptcy Rule 7056-1 and with exhibits and a memorandum of law. The Defendants filed a response, answering the allegations in the motion and submitting an affidavit of Maria Cornelia Danciu (“Maria”), the Debtor’s wife[1] The papers submitted by the Defendants did not precisely follow the Local Bankruptcy Rules, but the court is willing to provide some latitude to pro se
parties, particularly where, as here, sufficient information has been submitted to allow the court to make findings of fact.[2]
Findings of Fact
The following facts are contested. On November 27, 1996, title to 2105-07 West Lawrence, Chicago, Illinois (“Property”) was conveyed to Maria by warranty deed from Stojko Bozic and Nada Bozic. The Property is a multi-unit income producing property. Maria married the Debtor on March 14, 1997. On September 8, 2000, Maria executed a quitclaim deed to the Property in favor of herself and the Debtor as joint tenants, which was recorded on September 15, 2000.
The Defendants are Maria’s parents. On August 16, 2004, the Debtor and Maria conveyed to the Defendants all of their right, title and interest in the Property by quitclaim deed for no consideration. The deed was recorded with the Office of the Cook County Recorded on Deeds on October 4, 2004. The petition commencing this bankruptcy proceeding was filed on November 24, 2004.
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Maria’s affidavit, submitted to the court on behalf of her parents, the Defendants, added some meat to this bare bones story. She alleges that she purchased the Property with a down payment provided to her by her parents. She alleges that her parents built a garage on the Property and that they have always collected rents and paid the expenses of maintaining the Property. When they needed funds to make repairs to the Property after the City of Chicago cited the Property for Building Code violations, they were unable to obtain refinancing using the Property (ostensibly because they did not own it). Maria was also unable to obtain refinancing on her own and added the Debtor’s name to the deed and mortgage. Maria’s description becomes difficult to follow at this point. She claims that on September 8, 2000, she and her husband received some funds from the “mortgagor” in the amount of about $94,000 for their own personal use. A mortgagor is a borrower and she and the Debtor were the borrowers on the mortgage. She may have misused the term “mortgagor” to mean the lender.
She goes on to claim that she and the Debtor executed a quitclaim deed in favor of her parents in December, 2000 but never recorded it “because we were afraid that the bank would find out and take away the property.” Later, she went on, the Debtor’s business was slow and several liens were placed on the Property, at which point her parents “demanded that we quitclaim the [Property] immediately.”
Maria’s and the Defendants’ documentation of this story does not support it. A stack of disorganized documents is attached to the Defendants’ papers. Maria does not refer to specific exhibits or documents in her affidavit. The “Answer to Plaintiff’s Motion for Summary Judgment” refers to exhibit letters, but none of the attached documents are labeled. The court did review the attached documents which tend to support the Trustee’s facts and then some.
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Copies of mortgage and title documents show that Maria owned the Property and was the borrower on a November 27, 1996 mortgage with the Property as collateral for a $213,000 loan. The “Answer to Plaintiff’s Local Rule 7056-1 Statement” states that Maria held the Property “in trust” for her parents, but there is no document to support that statement. The Defendants attach copies of checks indicating that Maria and the Debtor received funds from the September 2000 refinancing of the Property. The Defendants characterize these funds as consideration for the September 2004 transfer of the Property to them.
The Defendants submit copies of many checks, presumably indicating payment for expenses on the Property such as insurance and utilities. The checks contain nothing to show that they were made for the payment of expenses on a particular property. Further, the checks are drawn on an account jointly held by Maria and the Defendants, not just the Defendants. Also included are copies of joint tax returns, filed by Maria and the Debtor in 2001, 2002, 2003 and 2004. These returns show that Maria and the Debtor treated the Property as their own, declaring the income and taking deductions for the expenses.
Finally, the Defendants attach copies of judgments against the Debtor’s business, including a lis pendens against the Property. These copies of judgments against the Debtor contradict the Defendants’ assertion that they were unaware that there were significant judgments pending against the Debtor when they became the beneficiaries of the transfer of the Property.
Conclusions of Law
Summary judgment is proper when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
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genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c), applicable to adversary proceedings by Fed.R.Bankr.P. 7056;Celotex v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552
(1986); Wade v. Lerner New York, Inc., 243 F.3d 319, 321 (7th
Cir. 2001). A court must view the record in the light most favorable to non-movant, drawing all reasonable inferences in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2510 (1986); Wade v. Lerner New York, Inc., 243 F.3d at 321.
Fed.R.Civ.P. 56(c) also provides that “[w]hen a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere . . . denials of the adverse party’s pleading, but the adverse party’s response . . . must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.”
Pursuant to Local Bankruptcy Rule 7056-1, the moving party is required to file with its motion a statement of material facts as to which the moving party contends there is no genuine issue, including specific references to the affidavits, parts of the record and other supporting materials relied upon to support the facts. The party opposing a summary judgment motion is required by Local Bankruptcy Rule 7056-2 to respond “to each numbered paragraph in the moving party’s statement” and to make “specific references to the affidavits, parts of the record, and other supporting materials relied upon.” Local Bankr. R. 7056-2A(2)(a). Most importantly, “[a]ll material facts set forth in the [7056-1] statement required of the moving party will be deemed to be admitted unless controverted by the statement of the opposing party.” Local Bankr. R. 7056-2B.
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Section 548(a)(1)(A)
Section 548(a)(1)(A) of the Bankruptcy Code provided[3] in pertinent part:
(a)(1) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily —
(A) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; . . .
In order to prove a cause of action under section 548(a)(1)(A) of the Bankruptcy Code, the Trustee must show that a transfer was effected with actual intent to defraud. “Direct proof of actual intent to defraud is not required — indeed, it would be hard to come by — and a trustee can prove actual intent by circumstantial evidence. [Citations omitted]. Courts often look to `badges of fraud’ as circumstantial evidence. [Citations omitted].” Frierdich v. Mottaz, 294 F.3d 864, 867 (7th Cir. 2002). The Seventh Circuit goes on to describe these “badges of fraud” as follows.
These “badges” include: whether the debtor retained possession or control of the property after the transfer, whether the transferee shared a familial or other close relationship with the debtor, whether the debtor received consideration for the transfer, whether the transfer was disclosed or concealed, whether the debtor made the transfer before or after being threatened with suit by creditors, whether the transfer involved substantially all of the debtor’s assets, whether the debtor absconded, and whether the debtor was or became insolvent at the time of the transfer.
Id. at 870.
It is undisputed that there was a transfer of the Property from the Debtor to the Defendants within one year of the filing of the bankruptcy petition. The issue here is whether the transfer was fraudulent. To determine whether there was fraudulent intent, the court must decide
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whether the Trustee has proven the “badges of fraud.” The most obvious badge of fraud is that the transferees are the in-laws of the Debtor, a “familial relationship.”
The Defendants argue that Maria and the Debtor did not really own the Property, but in fact, all of the indicia of ownership point to them. They had recorded title. They took a mortgage on the Property in September 2000, representing to the bank that they owned the Property and could use it as collateral. Their joint tax returns, filed in 2001, 2002, 2003 and 2004 show that Maria and the Debtor treated the Property as their own, declaring the income and taking deductions for the expenses. Either all of the parties concerned were lying then or they are lying now.
Furthermore, the Debtor received no consideration for the Property. The Defendants argue that funds received by the Debtor and Maria at the September 8, 2000 closing constitute consideration for the August 2004 transfer. The Defendants have provided no proof of a connection between the two transactions. Nor do they have proof that the funds came from them. The documentation submitted by the Defendants indicate that the funds came directly from the title company. The Property belonged to the Debtor and his wife.[4] They were entitled to take equity out of the Property during a re-finance if they chose to do so.
Finally, according to the Statement of Financial Affairs filed by the Debtor, at the time of
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the transfer, the Debtor was subject to five judgments totaling over $306,901. The Defendants submitted copies of judgments that were entered in the spring and summer of 2004, just prior to the date of the transfer. Maria states in her affidavit that her parents demanded that the Property be transferred to them when the Debtor began to have business troubles and liens were placed against the Property. In short, the evidence submitted by the Defendants tends to support the Trustee’s case that the Property was owned by the Debtor and his wife until they transferred it to the Defendants for no consideration after the Debtor began to accumulate debt and a few short months before the Debtor filed for bankruptcy protection.
Accordingly, the Trustee has made a prima facie case for a fraudulent transfer under § 548(a)(1)(A) of the Bankruptcy Code and the motion for summary judgment will be granted as to this section of the Bankruptcy Code.
Section 550
The relevant portion of Section 550(a) of the Bankruptcy Code provides that “to the extent that a transfer is avoided under section . . . 548 . . . of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from — (1) the initial transferee of such transfer . . .” Here, the Trustee is entitled to one-half of the unencumbered value of the Property and one-half of the rents collected from the petition date because the Debtor and Maria held the Property as joint tenants. Unfortunately, the court cannot determine the value of the Property from the evidence presented. The only appraisal provided to the court is seven years old. The Trustee would like the court to use the value
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provided by the Debtor in his Schedules, but there is no foundation for the Debtor’s assigned value. Therefore, a hearing will be set to determine the value of the Property as of the date of the transfer.
Conclusion
For the foregoing reasons, the Trustee’s motion for summary judgment will be granted to the extent of the relief requested pursuant to § 548(a)(1)(A) of the Bankruptcy Code. A hearing will be held to determine the value of the Property so that the court can set the amount of the Trustee’s remedy pursuant to § 550 of the Bankruptcy Code.
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