Fraudulent Transfer Litigation - The Eleventh Circuit Court of Appeals Deals a Blow to Lenders
A highly significant ruling involving fraudulent transfers recently decided by the Eleventh Circuit could have a far-reaching impact on distressed lending and investing. In Senior Transeastern Lenders v. Official Committee of Unsecured Creditors (In re TOUSA, Inc.), 2012 WL 1673901 (11th Cir. May 15, 2012), the Eleventh Circuit Court of Appeals reversed the district court and upheld the bankruptcy court’s ruling that liens granted by TOUSA’s subsidiaries to lenders constituted fraudulent transfers. In general terms, a fraudulent transfer is a conveyance by a debtor of property to a third party to place intentionally that asset out of reach of a creditor or creditors, or a conveyance made by the debtor to a third party for less than reasonably equivalent value, which conveyance was made while the debtor was insolvent or caused the debtor to become insolvent.
TOUSA, a Florida company, and its subsidiaries were once one of the largest homebuilders in the country. TOUSA had borrowed large amounts of money during the boom years prior to the collapse in the housing market. TOUSA defaulted on its loans to its original lenders, with whom TOUSA reached a settlement with those lenders in the amount of $421 million. TOUSA borrowed $500 million of new money to pay the $421 million settlement. In conjunction with the new $500 million loan, certain of TOUSA’s subsidiaries guaranteed the new loans and provided security interests in their assets. None of those subsidiaries, however, received any of the proceeds from the new loans.
Less than six months after the new loans, TOUSA and most of its subsidiaries filed for protection under Chapter 11 of the Bankruptcy Code. The Unsecured Creditors Committee in those cases filed a lawsuit to avoid the liens and guarantees made by TOUSA’s subsidiaries, arguing that the subsidiaries’ guarantees and liens provided to the new lenders constituted fraudulent transfers because the subsidiaries did not receive reasonably equivalent value in exchange. In ruling for the Creditors’ Committee that the subsidiary liens and guarantees should be avoided, the Eleventh Circuit rejected the argument of the lenders that the subsidiaries received indirect value from providing the liens and guarantees because the new loans enabled the subsidiaries to avoid defaulting on bond and bank obligations.
The Eleventh Circuit's decision in TOUSA could have serious implications in the distressed financing industry. Transactions involving debtors with subsidiaries will need to be structured to avoid the TOUSA fraudulent transfer problems. TOUSA could chill the availability of rescue financing for distressed entitities, although the full implications of the decision will not be known for some time.
Commencing January 1, 2012, legal, real estate and insurance professionals will be required to advise clients of 
Jones Lang LaSalle seems to think so. We hope that they are right. As reported by 
Recently, The New York Times published an article entitled 
Ohio House Bill 292, which prohibits the future creation of transfer fee covenants, was signed into law on June 14, 2010 and will become effective on September 13, 2010. Transfer fee covenants in effect prior to September 13, 2010 are not affected by the new law.
In what has become an 
“I have some prime swampland in Florida to sell you” is a slang expression used to poke fun at the gullibility of a person. This saying is based on events of the 1960s and 1970s where local scammers would attempt to induce out of state purchasers to acquire “lucrative” land which, in reality, turned out to be worthless, undevelopable plots. The federal Interstate Land Sales Full Disclosure Act (“Act”), 15 U.S.C. §§1701, et. seq., passed by Congress in 1968 and patterned after the Securities Law of 1933, was a reaction to that and other scams involving the sale of land. The Act was intended to provide a mechanism to inform buyers of land and to curb fraud and misrepresentation by sellers. In short, the Act forbids a “developer” or “agent” (for purposes of this article, a “seller”) who uses interstate commerce to sell or lease any nonexempt “lot” without first filing an acceptable “statement of record” with the U.S. Department of Housing and Urban Development and delivering to the buyer, prior to the sale, a “property report” which meets the requirements of the Act. When a buyer brings an action against a seller under the Act, the remedy sought, more times than not, is complete rescission of the purchase (as opposed to damages or equitable relief). While not all land sales require compliance with the Act (such sales being exempt under §1702 of the Act), for those sales and sellers that do fall under the jurisdiction of the Act, failure to comply can have serious consequences. .jpg)
On November 6, 2009, President Obama signed the Worker, Homeownership and Business Assistance Act of 2009. The new law extends the first-time homebuyer temporary federal tax credit for qualifying home purchases to April 30, 2010 and expands the eligibility requirements for purchasers.
Ohio’s Transfer on Death Statute became effective at the beginning of 2002. Prior to the law being passed, there was much buzz in the real estate and trusts and estates legal community about why Ohio did not have a vehicle permitting owners of real estate to transfer real property on death to a named beneficiary, thereby avoiding probate of the property. After all, bank accounts could be transferred by naming a transfer on death beneficiary. Why could the same not be done for real estate? Ohio’s transfer on death statute had several problems, most notably the ambiguity with respect to whether or not joint tenants could be transfer on death grantors and, if so, what was the effect of the death of one, but not all, joint tenants? The debate and discussion became so heated that a multiple choice question was circulated on the Ohio State Bar Association’s Real Property Listserv suggesting five different vesting possibilities with the sixth multiple choice answer being “I don’t give a rat’s @$$. I have heard entirely too much on this topic and I want to be left alone.” Choice 6 knocked all others out of the ballpark. .jpg)
Effective June 1, 2009 all residential properties (single family homes, condominium units and buildings with up to four units) in Cook County, Illinois will become subject to the amendments to the Illinois Notary Public Act contained in 
It was reported this week in Crain’s Cleveland Business that the 
I continue to be amazed at the reaction I get when I recommend to clients that they purchase title insurance as part of a real estate transaction. Granted I could be considered biased as I am a licensed title insurance agent, clerked in law school by searching titles in Franklin and the surrounding counties and spent the first 2 years of my legal career as an underwriting attorney for Chicago Title at their headquarters in Chicago. Generally, lending clients have accepted title insurance as a must; but not all developers and residential purchaser's have seen the light; notwithstanding the Erpenbeck situations which arise from time to time.