Affiliate Transfer: Fraudulent Conveyance or Unwinding Resulting Trust?

by Pepper Hamilton LLP

Anderson v. Architectural Glass Constr., Inc. (In re Pfister), 749 F.3d 294 (4th Cir. 2014) –

A chapter 7 trustee sought to set aside as a debtor’s transfer of her interest in property held jointly with her husband to her husband’s corporation as a constructive fraudulent conveyance. The bankruptcy court agreed that it was a fraudulent transfer; the district court reversed; and the 4th Circuit reversed in part, vacated in part and remanded for further proceedings.

In 2001 the debtor and her husband (the Pfisters) acquired undeveloped real property financed through a mortgage loan. Originally the husband intended to have his wholly owned corporation (AGC) buy the property, as specified in the purchase agreement. However, on advice of his accountant, he changed his mind. Instead he and his wife took title to the property and then leased it to AGC. The decision to take title in their names, not AGC’s, was “considered and intentional.”

AGC never paid rent, but instead made mortgage payments directly to the bank. Although AGC paid for the land, the debtor and her husband continued to hold title. When they refinanced the mortgage in 2002, AGC was listed as the borrower, and the Pfisters granted a mortgage on the property to secure the loan. AGC continued to make the loan payments.

The property was mortgaged several more times over the next few years. In each case the Pfisters granted the bank a mortgage on the property. Sometimes the Pfisters were identified as borrowers and other times AGC was identified. But in each case AGC made all of the loan repayments.

In December 2008 the parties intended to follow the pattern of the Pfisters granting the mortgage but in preparing the documents the lender identified AGC as the mortgagor.   An attorney realized this was an issue at the closing. To fix the problem the Pfisters deeded the property to AGC in exchange for $10.00.

Seven months later Mrs. Pfister filed a chapter 7 bankruptcy, and eventually the chapter 7 trustee moved to set aside the transfer of her interest in the property to AGC as a constructive fraudulent conveyance. The trustee alleged that she had a one-half interest in property with a value of $270,000 at a time that she was insolvent so that the transfer was avoidable under Sections 548 and 544 of the Bankruptcy Code.

As background, both actual and constructive fraudulent transfers can be avoided under Section 548 of the Bankruptcy Code, or by exercising similar rights under state law under Section 544 of the Bankruptcy Code. Constructive fraud is established by showing that (1) the debtor did not receive reasonably equivalent value and (2) it was insolvent, intended to incur debts beyond the ability to pay when due, or was left with unreasonably small capital. Once a trustee avoids a fraudulent transfer, it can recover the property or alternatively seek the value of the propoerty under Section 550 of the Bankruptcy Code.

AGC argued that it always owned the property by way of a resulting trust. That would mean that it held equitable title and the Pfisters held only bare legal title. The trustee can recover only the property interest that the debtor actually owned. A trust severs the legal and equitable interests. So, if a resulting trust was created in favor of AGC, Mrs. Pfister held only bare legal title, which did not have significant value. In that case Mrs. Pfister’s title lacked value so that she conveyed it for reasonably equivalent value, and thus the transfer was not a fraudulent conveyance.

Under applicable state law:

The general rule is that when real estate is conveyed to one person and the consideration paid by another, it is presumed that the party who pays the purchase money intended a benefit to himself, and accordingly a resulting trust is raised in his behalf… But when the conveyance is taken to a wife or child, or to any other person for whom the purchaser is under legal obligation to provide, no such presumption attaches. On the contrary, the presumption in such case is that the purchase was designed as a gift or advancement to the person to whom the conveyance is made.

According to the 4th Circuit, since Mrs. Pfister is the wife of Mr. Pfister and Mr. Pfister is the sole owner of AGC, there was a presumption under state law that the purchase was intended as a gift by Mr. Pfister to Mrs. Pfister.

AGC could rebut the presumption by proving “(1) it paid for the property (or committed to pay for the property), (2) with the intent to own it, (3) on the date of purchase.” The 4th Circuit emphasized that the trust must arise at the time the deed is delivered, not at some future point in time.

Here, it was clear that AGC did not commit to pay until after the initial acquisition. Further, at the time of the purchase the parties clearly contemplated a rental arrangement with AGC as a tenant. Thus, the majority of the court concurred with the bankruptcy court that there was no justification for finding that there was a resulting trust.

A dissenting opinion took issue with the majority’s analysis. The conclusion it reached was that a resulting trust is an equitable remedy designed to implement the intent of the parties where one pays for the property and for some reason title is in the name of another. Here it was clear that the intent of the parties was that Mrs. Pfister had mere legal title and AGC “is and always has been the equitable owner of the property.”

The dissenting opinion took particular issue with the bankruptcy court analysis that determined intent based on the parties named in the deed. By definition, circumstances giving rise to a resulting trust contemplate the title was held by somebody other than the intended equitable owner. Thus, the dissenter would have found that there was a resulting trust and AGC was the equitable owner.

It can be very difficult to predict how equitable trusts will be treated in a bankruptcy. If the parties start out with an equitable trust arrangement and then decide to transfer title to reflect the actual intent, they should be aware that the transfer is potentially subject to avoidance, as occurred in this case.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pepper Hamilton LLP | Attorney Advertising

Written by:

Pepper Hamilton LLP

Pepper Hamilton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.