Insufficient Badges of Fraud to Establish Fraudulent Intent, Texas Court Dismisses Trustee’s Claims

February 8, 2021, Southern District of Texas – This case stemmed from the actions between two parties, Alfred Jackson, ( the “Debtor”) and George Lee, a hard money lender ( the “Defendant”). Their relationship began in May 2018, when Alfred Jackson was in imminent danger of losing his homestead to a foreclosure. 

There were two transfers at issue before the Court – First, the transfer of the homestead, which was transferred by a deed in lieu of the foreclosure. Second, a cash transfer of $174.000.00 allegedly made for the benefit of the Debtor. The Trustee requested avoidance of the transfers and perceived equity in it, and attorney’s fees according to 11 U.S.C. §§ 548(a)(1), 550, TEX. BUS. & COM. CODE § 24.006(a), and TEX. BUS.& COM. CODE §24.005 (a)(1). (“TUFTA § § 24.005-24.006).

The Court held that the Trustee’s fraudulent conveyance claims fail because there were insufficient badges of fraud to establish fraudulent intent. The Court reasoned that the Debtor received adequate consideration for the transfer in the form of the forgiveness of debt, there was no close relationship between the Debtor and the transferee, and the transfer was made to avoid foreclosure, not to avoid a lis pendens or to the detriment of other creditors. The Court found the overall analysis in Defendant’s favor, as the transfer of the property did not make it more difficult for any of Jackson’s creditors to reasonably collect on their debts.

However, the Court held that the Trustee was entitled to a judgment that a cash transfer constituted a fraudulent transfer under 11 U.S.C.S. § 548(a)(1)(A) and TUFTA, as the affirmative defense of reasonably equivalent value or good faith was not shown. The Trustee was not entitled to attorney’s fees, as the Debtor did not act egregiously or in bad faith.

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