URGENT: Is this Fraudulent Conveyance?? Closing Short sale TODAY; 2nd demands $6500

[banksownme]

We are in a very tricky situation - one that will likely require us to file Chapter 13 shortly, and we are currently insolvent per standard IRS definitions.

Our pressing question is whether or not we are about to commit fraud by participating in a short sale of our former primary residence, via a previous agreement that we, as the sellers, contribute 6500 to the close. This amount was coerced IMHO through the process. Obviously, if we refuse to pay this will be in breach of the RE contract, however, if we file a BK we understand the point of suing us over this would be rather moot. Further, the buyer is "stealing" the house, (we had 850K in it, they are buying around 600 and could flip for high 600s/low 700s). Also, due their not being able to get financing as represented, our agent had to renegotiate with the 1st to take yet another $20,000 haircut on the sale. OUR agent deserves MORE than their commission, and the sellers agent deserves to lose their license. ( long story short)

Therefore, we are wondering if anyone out there has a take on this point of law?

Are we committing a Fraudulent Conveyance to pay this lump some to settle with the 2nd ($200K+). We are also selling assets in this deal for $3500 to the buyer which is also being then paid to the 2nd, therefore, a total of $9500 is being sold and or transferred to settle this outstanding HELOC. We are concerned that technically, we are not even allowed to sell the appliances potentially and give those funds to the lender.

Thank you in advance for any and all advice
_______________________________________________

the back story and reference:
We are about to close a short sale on a former home, and the 2nd requires 6,500 from us (in addition to 1st contribution, and 3500 from appliance sales to buyer). Over the last month as our situation worsened, and our current mortgage holder refused to take our payments, we have realized how dire our situation had become. This led to further legal research, specifically into a Chapter 13 filing. We are concerned that making this payment would be defined as a fraudulent conveyance. While we agreed to do this in the sale contract, that was many months ago, the buyer delayed the deal out of negligence and poor guidance from their agent, as did the banks in getting the short sale completed in general - we are over a year into this nightmare.

Now, facing foreclosure on our CURRENT residence, 4 junk debtor lawsuits, a possible secured BELOC action from a former business bank that refuses to take monthly payment ($44K demand notice) - we are facing having to file a chapter to protect our remaining assets and our small business. Failing that - employees will lose jobs, and we may have to shutter the company and turn down major contracts that would have employed dozens. Additionally, there is malfeasance on the part of several fired or former real estate agents and brokers, fiduciary violations by said agents, and the current buyers RE agent/broker, all of whom would likely lose their licenses to practice were I to file a complaint with the CAR ( California Board of Realty)

Completion of this deal DOES include full deficiency releases from both lenders

We are also joining the NACA class action suit against Chase.

[biotechsolution]

It sounds like you have no choice to file in the long run so why would you pay $6500 out now?? If you're filing anyway I wouldn't pay anything out.

[banksownme]

It is not a foregone conclusion if we can find a way to 'heard the cats [unsecured creditors] and settle with them - nor is it ideal a BK would nuke our main client, the US Government. We are trying to determine -= is this illegal or not, given our situation? Of course we would prefer to not pay, and we know our agent, theirs and the buys were will 'go postal', but there will not be much they can do - they want the house and have already done work on it pre escrow

[frogger]

Fraud is intent. Provided your intentions are honorable, fraud will not be the problem. That being said however, any property transfers within 2 years of filing bk will be examined by the trustee. If yours smells the least bit fishy, everything could be turned upside down with every party involved being the looser.

[Flamingo]

You need to consult with a real estate attorney concerning your situation. Best of luck to you.

[banksownme]

thanks Frogger - that seems in line with our thinking. The property sold has zero equity in it for us of course. the Sale extinguishes about 500K in negative equity. my read of the code was concerning me with respect to the rather small numbers that triggered issues -

the point of the code seemed to be that we were not allowed to use 6500 + liquidate the appliance ( high end) for 10,000, and then use that to settle with Citibank. Ironically, three of our lawsuits are with Citibank. it is all a cluster F at this time

are you saying that even the sale of house may have past escrow risks? We do not btw have any relationship with the buyers

[banksownme]

we are vetting attorney's for that and BK as I write, and our general counsel also weighs - doe snot like breaking a contract on the other had does not like fraud - selecting paying this rather than a secured business line of credit for example, and the payment reduces cash available to hire staff and fight off banks forcing our hand on other matters - geeeez - if only we had started a company with Facebook or Zynga in our name - but we alas blew that one - .....(he he)

[frogger]

thanks Frogger - that seems in line with our thinking. The property sold has zero equity in it for us of course. the Sale extinguishes about 500K in negative equity. my read of the code was concerning me with respect to the rather small numbers that triggered issues -

the point of the code seemed to be that we were not allowed to use 6500 + liquidate the appliance ( high end) for 10,000, and then use that to settle with Citibank. Ironically, three of our lawsuits are with Citibank. it is all a cluster F at this time

are you saying that even the sale of house may have past escrow risks? We do not btw have any relationship with the buyers

Any real estate transaction that does not pass the smell test for the trustee has a risk. As to the $6500.00, you're going to need to age that if you do file for bk, for it could possibly be construed as a preferential payment. Time heals many wounds.....

[banksownme]

Thanks Frogger -
this is a very interesting point of law. I have researched this to death, and cannot find clear guidance anywhere. If we refuse to sign this, the Buyer and the agents would have the right to sue us for breach for contract. Also, as we have not filed BK and still hope to avoid that, it seems to make the law a "shade of Grey." We are insolvent, however, if we received a couple good bookings in the next 30 days, we may be able to avoid our demise. The Buyers and both agents, including ours, are boiling to screaming over this, but I reason that Federal law trumps CA contract law on the breach of contract. The Code does seems to call out selling assets (our appliances for $3500), and paying this lump sum ($6500) as a violation - Fraudulent Conveyance (fc). But, we have not yet filed, nor have we 100% given up with our fight to save our small business.

I sure appreciate everyone's thoughts on this tricky issue

[jcj112562]

This *might be* more along the "preferential payment" line as opposed to fraud. I see one thing you wrote above, the "if we received a couple good bookings in the next 30 days, we may be able to avoid our demise" line....not to come across as a wet blanket, but it is not exactly a common occurrance for folks that are on this board for the "if only" to actually come to pass, and in the long term view of things, it might make much more sense for you to file now, and not have to deal with all of the issues that are currently on your plate. Just a thought, and whatever you do, good luck in this...

John

[banksownme]

Thanks for your thoughts John. As we are trying to save a small business, and because the US Government has been our #1 client the last 5 years or so, the BK would be devastating to our intent to expand the Gov sales and provide jobs in our area. Otherwise, YES - we have all the reasons to tank from a pure economic reason. We are also trying to save our current primary residence, which is very special. But IF WE HAVE TO, and the deals do not come, then it will be the only option. However, the deals we are after are formidable - and could position us to settle the unsecured debt ( $300,000) which right now I think they will take about 45K more or less to close out.

Thing is that we don't want to make a mistake with this - and the choice between breach of contract and violating a BK statue is hard to process. Our general counsel thinks we should just "screw" the Buyers - as they will likely pay the $6,500 or their agent can chip in from the $!5,000 commission.

Pretty complex case isn't it? This is the curse of small business as were we just w2 employees, were I NOT TO CARE about putting American's back to work which I do, then I could just pull the trigger and move on....

The SBA is helping us as well - and we have some support - I just have not be able to find the right BK attorney to fully understand the consequences of that action

[Charlie777]

You pay the General Counsel for his advice, you should strongly consider it.

I don't think this would be a fraudulent conveyance because you have been open and notorious about what you are doing. If you have to file, it's probably a preferential payment, the consequence would be the Trustee pursuing the lender to to return it to the estate.

[banksownme]

thanks Charlie - that makes a lot of sense - and we really need to get this house of the books, rather than yet another litigation

[frogger]

Once again, fraud is not going to be the problem, because you are not hiding anything. You do need to speak with appropriate counsel about the possibility of a preferential payment and the possibility of the trustee voiding the transaction if you do bk.

Seek appropriate counsel on this.....

[Charlie777]

From a quick search for "Fraudulent Conveyance Title 11 (Title 11 is the Bankruptcy Act):

The illegal transfer of property to another party in order to defer, hinder or defraud creditors.

Investopedia Says:
In order to be found guilty of fraudulent conveyance, it must be proven that the accused's intention for transferring the property was to put it out of reach of a known creditor.

A fruadulent conveyance would be for you to sell a property with equity to a relative for less than it's worth. Yo ar struggling mightily to get an uderwater property out of your hands, there's no equity being hidden. But you're using other funds to get the sale done - thus it could be a preferential transaction the Trustee could "call back".

Best of luck to you.