View source for Fraudulent or Preferential Transfers

WFG will no longer issue an ALTA 21 or other Creditor's Rights Coverage (except as set forth in the standard ALTA policies)

*In 2011, [https://uww.wfgnationaltitle.com/images/5/5d/Texas_SB_735.docx Texas law] was changed to prohibit any Texas licensed title insurer from issuing creditor's rights coverage anywhere in the United States. 
*California followed suit, obtaining express [https://uww.wfgnationaltitle.com/images/e/eb/Creditor_rights_agreement_with_Ca_DOI.pdf agreements] from title insurers not licensed in Texas -- including one of WFG's predecessor companies (later merged into WFG) -- committing to not issuing creditor rights coverage



Three separate Bankruptcy law provisions and legal standards apply to when a trustee (or DIP) may avoid a transaction.  
* §547 -- Preferential Transfers
* §548 -- Fraudulent Transfers
* §544(b) -- state law challenges

==§547 -- Preferential Transfers==
A Trustee may avoid “preferential transfer” to or for benefit of a creditor for an antecedent debt, made while insolvent within 90 days prior to filing (1 year if an insider).   [https://www.law.cornell.edu/uscode/text/11/547 11 USC 547].   

Exceptions for: 
* contemporaneous exchange of new value actually made  547(c)(1); or 
* ordinary course of business; or 
* creating a security interest securing new value given to acquire property (must be perfected within 30 days after closing) 547(c)(3).   This is most purchase money mortgages.

==§548 -- Fraudulent Transfers==
A transfer of the debtor’s property to another party in order to deter, hinder or defraud a creditor, or to unfairly place such property out of the reach of a creditor is a fraudulent transfer under [https://www.law.cornell.edu/uscode/text/11/548 § 548] of the Bankruptcy Code.  In bankruptcy cases, a trustee  (or DIP) is given the power to set aside or avoid these transfers under either federal law or state law.  

Under §548, the test is whether:

(A) the transfer was made "with actual intent to hinder, delay, or defraud"; or
(B) the Debtor (i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and (ii) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation.

This is limited to transfers during the 2 year period prior to filing the petition.  § 548(a)(1).   As long as the transfer occurred within one year of the bankruptcy filing, the complaint can be filed anywhere within two (2), and perhaps as long as three (3), years after the bankruptcy is filed. This additional period to initiate the action under the Bankruptcy Code arises out of the language of [https://www.law.cornell.edu/uscode/text/11/546 11 U.S.C. §546]. 


==§544(b) -- State Law Challenges==
Under [https://www.law.cornell.edu/uscode/text/11/544 §544(b)] of the Bankruptcy Code, the trustee (or DIP) may also avoid a transfer “that is voidable under applicable law by a creditor holding an unsecured claim.” This means that the trustee may look to non-bankruptcy law (usually “state” law) and deploy any avoiding power that he finds there. The most common use of §544(b) is to give the trustee a right of action under state fraudulent transfer law, the UFTA or UFCA. 

Most importantly, structuring this as a state law claim often allow the trustee (or DIP) a longer reach-back period based on the state Statute of limitations.

==Attack on Prior Sale for Ad Valorem Taxes==

In 1997 the U.S. Supreme Court decided ''BFP v. Resolution Trust Corp.'', [https://supreme.justia.com/cases/federal/us/511/531/ 511 U.S. 531]. It held that a regularly-conducted mortgage foreclosure sale could not be considered a fraudulent transfer under Bankruptcy Code Sec. 548, even if the sale brought much less than market value. However, the opinion expressly did not apply to tax foreclosure sales. 

Most recently, the Sixth Circuit has found that fraudulent transfer reasoning can apply to tax sales; see ''In re Lowry'', 2021 WL 6112972 (6th Cir. Dec. 27, 2021). There is now reportedly a split in the circuits, with the Second, Third, Sixth and Seventh holding that a tax sale can be set aside as a fraudulent transfer, and the Fifth, Ninth and Tenth holding that it cannot. Dirt Blog 1/14/21, updated to reflect Gunsalus.

Gunsalus v. County of Ontario, 37 F.4th 859 (2d Cir. 2022) held that in a "strict foreclosure" of delinquent property taxes, where title transferred to the County if not paid by a date certain, there is no presumption that the foreclosure proceeding provided for "reasonably equivalent value" unlike the public auction foreclosure in BFP v. Resolution Trust Corp. In a post-foreclosure Bankruptcy, the sale could be set aside as a fraudulent conveyance.