271 B.R. 403 United States
Bankruptcy Court, M.D. Florida,Jacksonville Division. In re Bernadine L.
BOSONETTO, Debtor. Gregory K. Crews,
Trustee, Plaintiff, v. Bernadine L. Bosonetto and Lolita M. Balch, Defendants. Bankruptcy No. 01-00649-3P7.Adversary
No. 01-0078. Dec. 12, 2001. [*404] COUNSEL: Richard R. Thames, Jacksonville, Florida, for
plaintiff. Armistead W. Ellis, Daytona Beach, Florida, for defendant. FINDINGS OF FACT AND CONCLUSIONS OF LAW JUDGE: GEORGE L. PROCTOR, Bankruptcy Judge. This adversary proceeding is before the Court upon (i) the
Complaint filed by Plaintiff, Gregory K. Crews, Trustee, seeking to avoid the
fraudulent transfer of the Debtors interest in property pursuant to
11 U.S.C. § 544(b), and (ii) the Trustees objection to the Debtors
claim of exemption for her homestead property. A trial of these matters was
held on September 13, 2001 and the parties were directed to submit a proposed
order, findings of fact, and conclusions of law to this Court by October 23,
2001. Plaintiffs attorney complied but Defendants attorney
never submitted such documents to this Court. The Court does not penalize the
Defendant for this default. Rather, this Court bases these Findings of Fact and
Conclusions of Law on the evidence presented and the law this Court deems to be
proper. FINDINGS OF FACT 1. The debtor in the main case, Defendant Bernadine L. Bosonetto,
is an 89 year old widow who formerly resided in West Bloomfield, Michigan
(T15). 2. In 1994, this Defendant was sued by R. Celstia Burnett for
injuries she sustained while visiting this Defendants property (T22). 3. In 1995, this Defendant, who was then known as Bernadine
Bruner, sold her home in Michigan for $320,000 (T16). She received [*405]
$60,000 cash and held a contract for deed for the balance (T16). 4. In August of 1997, she established the Bernadine L. Bruner
Revocable Living Trust (Trust) and conveyed to it all of her tangible and
intangible property even though record ownership or title, in some
instances, may presently or in the future, be registered in my individual name,
in which event such record ownership shall hereafter be deemed held in trust
even though such trusteeship remains undisclosed (P22). The contract
for deed from the sale of her property was specifically assigned to the Trust
(P22). 5. She remarried in July of 1998, and thereafter was known as
Bernadine L. Bosonetto (T20). The name of the Trust was amended on November 3,
1998(P22). 6. In September of 1998, Defendant Bosonetto received the balance
of the sum due under the contract for deed. The proceeds were invested as
follows: $100,000.00 Mutual Life Insurance
Co. Policy # 1075589 $ 25,000.00 Mutual Life Insurance
Co. Policy # 1080037 $ 85,000.00 Putnam High Yield
Trust II $ 28,349.94 George Putnam Fund of
Boston CL-B (P5-P8) 7. Title to each of the Putnam accounts was held by Bernadine L.
Bosonetto, Trustee (P7-8). 8. A jury trial of the Burnett personal injury action took place
in February of 1999, and on February 25, 1999, the Circuit Court for Oakland
County, Michigan entered a final judgment in favor of Burnett and against
Defendant Bosonetto in the amount of $161,199.36, including costs (P4). 9. Defendant Bosonetto moved for a judgment notwithstanding the
jurys verdict and for a new trial (T40). The motion was denied during
the Spring of 1999(T28). However, on September 7, 2001, the Michigan appellate
court reversed and remanded for new trial due to a flaw in the trial courts
jury instruction (See Doc. No. 29, exb. B).FN1 FN1. At trial,
Defendant initially stated that the effect of this ruling was that there
is no valid claim that this particular Plaintiff has any longer pending against
the Debtor. The Plaintiff alleges that the only effect of the
reversal is that the judgment is now a unliquidated claim. Defendant did not
dispute this assertion at trial. 10. While the post-trial motions were pending, Defendant Bosonetto
liquidated all of her investments (incurring over $18,194 in penalties for
doing so) (P5, 6, 7 and 8) and purchased a two-story, 3,200+ square foot home
located at 15 River Ridge Trail, Ormond Beach, Florida (Florida property), for
$248,000 cash (P13 and 25). Title to the home was taken in the name of
Bernadine L. Bosonetto and Lolita L. Balch, Defendant Bosonettos
daughter, as joint tenants with right of survivorship (P19). 11. Defendant Balch gave no consideration for her interest in the
Florida property (T31). 12. The purchase of the Florida property virtually depleted
Defendant Bosonettos cash and savings (T35). 13. Defendant Bosonetto receives $1,000 per month in social
security benefits and $62.40 per month in retirement benefits (T35). Defendant
Bosonettos monthly expenses average $1,435.40 (P14). 14. Real estate taxes for the Florida property are approximately
$4,100 per year (T24). [*406] 15. Defendant Bosonetto has less than $1,400 in furniture
to furnish the 3,200 square foot home (P14). 16. The Michigan judgment was domesticated in Florida on or about
December 28, 1999(P26). 17. On January 29, 2001, Defendant Bosonetto filed a voluntary
petition for relief under Chapter 7 of the Bankruptcy Code (P14). Plaintiff
Gregory K. Crews was appointed Trustee. 18. On March 8, 2001, the Plaintiff filed an objection to the
Defendant Bosonettos claim of exemption for the Florida property, and
on March 9, 2001, initiated this adversary proceeding seeking (i) to avoid the
purchase of the Florida property as a fraudulent transfer; and (ii) to avoid
the transfer of the 50% interest and right of survivorship interest in the
property to Defendant Balch. The trial of the adversary proceeding was
consolidated with the trial of the objection to exemption. 19. At the inception of the trial, the Plaintiff announced that he
was abandoning the fraudulent conversion claim related to Defendant Bosonettos
interest in the homestead property in light of the Florida Supreme Courts
decision in Havoco of America, Ltd. v. Hill, 790 So.2d 1018 (Fla.2001), leaving
only (i) the fraudulent transfer claims against Defendant Balch and (ii) the
objection to exemption to be litigated. ANALYSIS 1. Whether the property is owned by the Trust and if so whether a
trust may claim homestead property as exempt. The Plaintiff argues that the Florida property is owned by
Defendant Bosonettos trust and that trusts cannot claim homestead
property as exempt. Plaintiff notes that the monies which were used to purchase
the Florida property came from the proceeds of the contract for deed which was
owned by the Trust and that these proceeds were then invested. Those
investments evidently financed the purchase of the Florida property. Defendant Bosonetto established the Trust in 1997 and conveyed all
of her tangible and intangible property to it even though record
ownership or title, in some instances, may presently or in the future, be
registered in my individual name, in which event such record ownership shall
hereafter be deemed held in trust even though such trusteeship remains
undisclosed (P22). The contract for deed was specifically assigned to
the Trust (P22). This Court notes that a trust may own real property under
Florida law. Fl.Stat.Ch. 689. Thus, Plaintiff argues that by the express terms of the Trust, the
Florida property is owned by the Trust outright or, alternatively, under a
resulting trust. See e.g. Brevard County v. Ramsey, 658 So.2d 1190 (Fla. 5th
DCA 1995) (execution of deed between grantor of trust and self is not necessary
where separate written declaration of trust exists). As noted, the Plaintiff argues that a Trust cannot claim a
homestead exemption. The Florida Constitution provides the homestead exemption
to property owned by a natural person: (a) There shall be
exempt from forced sale under process of any Court
the following property
owned by a natural person: (1) a homestead, if
located outside a municipality, to the extent of one hundred [*407]
sixty acres of contiguous land and improvements thereon
This Court finds that the Trust does own the Florida property by
the express terms of the Trust or, alternatively, under a resulting trust and
because a trust is not a natural person, Defendant Bosonetto may not claim the
Florida property is covered by the homestead exemption. 2. Whether the transfer of the 50% interest and survivorship
interest to Defendant Balch may be avoided as a fraudulent transfer. The Complaint also seeks to avoid, as a fraudulent transfer, the
conveyance of the 50% interest and the right of survivorship interest in the
property to Lolita M. Balch, Debtors daughter. Plaintiff, a trustee, may avoid any transfer of an
interest of the debtor in property
that is voidable under applicable
law by a creditor holding an unsecured claim
11 U.S.C.
§ 544(b)(1).FN2 Applicable law in this
sense is the substantive fraudulent transfer law of the forum state. In re
Davis (Crews v. Carwile), 138 B.R. 106, 108 (Bankr.M.D.Fla.1992). FN2. Section 544(b),
as opposed to § 548(a)(1)(A), is the relevant statute because the
liquidation of the non-exempt bank accounts and subsequent purchase of the
Florida homestead took place more than one year prior to the petition date. In Florida, a transfer made with actual intent to hinder, delay or
defraud creditors, or which is constructively fraudulent, may be avoided by a
present or future creditor: (1) A transfer made or
obligation incurred by a debtor is fraudulent as to a creditor, whether the
creditors claim arose before or after the transfer was made or the
obligation was incurred, if the debtor made the transfer or incurred the
obligation: (a) With actual intent
to hinder, delay, or defraud any creditor of the debtor; or (b) Without receiving
a reasonably equivalent value in exchange for the transfer or obligation, and
the debtor: 1. Was engaged or was
about to engage in a business or a transaction for which the remaining assets
of the debtor were unreasonably small in relation to the business or
transaction; or 2. Intended to incur,
or believed or reasonably should have believed that he or she would incur,
debtors beyond his or her ability to pay a they became due. Fl.Stat.Ch. 726.105(1). The statute then sets forth a non-exclusive list of factors,
traditionally known as badges of fraud, to be considered by
the Court in determining actual intent: (2) In determining
actual intent under paragraph (1)(a), consideration may be given, among other
factors, to whether: (a) The transfer or
obligation was to an insider. (b) The debtor
retained possession or control of the property transferred after the transfer. (c) The transfer or
obligation was disclosed or concealed. (d) Before the
transfer was made or obligation was incurred, the debtor had been sued or
threatened with suit. (e) The transfer was
of substantially all the debtors assets. (f) The debtor
absconded. (g) The debtor removed
or concealed assets. [*408] (h) The value of the
consideration received by the debtor was reasonably equivalent to the value of
the asset transferred or the amount of the obligation was incurred. (i) The debtor was
insolvent or became insolvent shortly after the transfer was made or the
obligation was incurred. (j) The transfer
occurred shortly before or shortly after a substantial debt was incurred. (k) The debtor
transferred the essential assets of the business to a lienor who transferred
the assets to an insider of the debtor. Fl.Stat.Ch. 726.105(2). A transfer which is not accompanied by adequate consideration may
also be avoided by a present creditor pursuant to § 726.106,
Florida Statutes, regardless of intent: (1) A transfer made or
obligation incurred by a debtor is fraudulent as to a creditor whose claim
arose before the transfer was made or the obligation was incurred if the debtor
made the transfer or incurred the obligation without receiving a reasonably
equivalent value in exchange for the transfer or obligation and the debtor was
insolvent at that time or the debtor became insolvent as a result of the
transfer or obligation. Fl.Stat.Ch. 726.106(1). The Plaintiff argues that under either of the above statutes, the
transfers from Defendant Bosonetto to her daughter may be avoided because: (1) The transfer was
to Defendant Bosonettos daughter, an insider; (2) The liquidation of
the investments and purchase of the Florida property took place almost
immediately after the jury rendered its verdict and after the motion to set
aside the verdict was denied (T40); (3) The transfer was
of substantially all of the Defendant Bosonettos assets (T35). As
Plaintiff notes, Defendant Bosonetto liquidated her entire investment portfolio
even though she had purchased the investments a mere eight months prior, and
incurred over $18,194 in penalties for making the early withdrawals (P5, P8).
Plaintiff also notes that the liquidation of Defendant Bosonettos
portfolio and subsequent purchase of the Florida property left her with no money
to live on and that after the purchase her monthly expenses actually exceeded
her monthly income by over $373 (T35-36). (4) Defendant
Bosonetto absconded. Plaintiff argues that even though Defendant Bosonetto was
a life-long resident of Michigan and her family and friends reside there she
chose to hastily liquidate her investments and move to Florida once faced with
the judgment against her (T15); (5) Defendant Balch
gave no consideration for her interests in Defendant Bosonettos
Florida property (T45) and thus Defendant Bosonetto did not receive reasonably
equivalent value in exchange for the transfer; (6) The purchase of
the Florida Property and transfer of the various interests in the property to
Defendant Balch left Defendant Bosonetto insolvent with an inability to pay her
normal monthly debts as they became due. As noted, according to her bankruptcy
schedules, Defendant Bosonetto receives $1,062.40 in monthly income, and has
monthly expenses of $1,435.40 (P14); (7) The timing of the
transfer and subsequent purchase of the Florida property is evidence of an
intent to hinder, delay and defraud creditors. Plaintiff notes that not only
did Defendant Bosonetto incur substantial penalties for making early
withdrawals from her investments, she [*409] spent less than one week selecting
the home, (T30) and the home purchase transaction closed less than two weeks
after contracting. Thus, the Plaintiff argues that the relatively short time
period between the liquidation of the investments and the closing of the
transaction suggests a sense of urgency in placing non-exempt assets beyond the
reach of creditors; and (8) The size of the
Florida property exceeds the reasonable needs of Defendant Bosonetto. Plaintiff
notes that the Florida property is a 3,200 square foot home with a two-car
garage (P24, P25) even though Debtor has no car (T34) and only has $1,400 in
furniture to furnish the home. Her furniture consists of a dining room table
and chairs, a chest of drawers, a bedroom suite, television and recliner (P14,
T21). This Court finds that all of the essential elements of a
fraudulent transfer have been proven and the transfer of the interests in favor
of Defendant Balch shall be avoided pursuant to § 726.105, Florida
Statutes. Additionally, Plaintiff may sell the subject property to realize the
value of the fraudulently transferred assets for the estate.FN3 In re
Englander, 95 F.3d 1028 (11th Cir.1996) (homestead property may be sold to
realize the value of the non-exempt portion). FN3. Pursuant to 11
U.S.C. § 522(g), a debtor may not exempt property which is recovered
as a fraudulent transfer. The reversal converted a liquidated claim into an
unliquidated claim. Conclusion The Trustee is entitled to prevail on both the objection to exemption
and the Complaint to avoid the fraudulent transfer to Defendant Balch. The Court will enter a separate order sustaining the Trustees
objection to the Debtors claim of exemptions and a judgment avoiding
the Debtors transfer of an interest in property to Defendant Balch. |