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Debtor Held Properties in Constructive Trust, No Fraudulent Conveyance Under § 544


September 29, 2021, Middle District of Georgia – Trustee Walter W. Kelley for the bankruptcy estate of Julia Marie Haar sought to avoid, as fraudulent conveyances, the transfer of two parcels of real
property by Debtor to Defendant David Haar.

As to the facts of the case, the Debtor is Defendant’s sister. Defendant purchased the two properties using his own money. Defendant resided in one of the properties for many years and leased the other one to the Debtor and received rent in exchange. At some point in time, Defendant signed quitclaim deeds, conveying the two properties to the Debtor, but did not receive any consideration from the Debtor. However, the Debtor continued to reside at the property and pay the monthly rent to Defendant, who continued to maintain both properties and pay the taxes, insurance, and repairs. A few years later, the Debtor conveyed the properties back to Defendant and the Defendant did not pay any consideration for the transfers. Debtor filed a Chapter 7 petition.

Defendant argues that the Debtor’s interest in the properties would not be the property of the estate because Debtor only held bare legal title which would confer no tangible economic value upon the estate. Defendant further argues that the properties were held in constructive trust by the Debtor. The Trustee argues that the granting clauses of each quitclaim deed unequivocally transferred Defendant’s full and complete interest without reservation or limitation. The Trustee asserts that Defendant had no agreement with the Debtor to hold the properties in trust or for how long the properties would be in Debtor’s name. Further, no trust agreement or other document was made or recorded indicating that Defendant retained any interest in the properties.

The Court ruled for Defendant and concluded that Debtor held the properties in the constructive trust. The Court reasoned that when the Debtor reconveyed the properties, she conveyed bare legal title only. Therefore, transfer of the properties did not constitute a transfer of an interest of Debtor’s property under 11 U.S.C. § 544. The Court granted Defendant’s motion for summary judgment.

In re Haar, 2021 Bankr. LEXIS 2690, 2021 WL 4483426