During forced collection / attachment proceedings, the Debtor alleged that he could not pay the Creditor because of an arm’s length business loan from “Offshore Lender” in the millions. The Debtor further claimed that he had collateralized his business loan with mortgages, promissory notes and U.C.C. liens, on nearly all of his property.
Through subpoenas and depositions during the enforcement/attachment proceedings, the Creditor learned that the Debtor’s Lawyer had:
- Used a personal N.Y. bank account to disburse millions in loan principal to the Debtor, instead of an attorney escrow account as required in New York at pp.22-3, Part 1200 Rules of Professional Conduct 1.15 (b)(1) & (2).
- Introduced the Debtor to Offshore Lender.
- Jointly represented both the Debtor and Offshore Lender in the making of the loan.
- Prepared all the loan documents, such as the mortgages, promissory notes, etc.
- Not perfected a U.C.C. lien required by the loan, (although it would have secured millions / was a material condition of the loan).
The Creditor additionally discovered that Offshore Lender had never verified or evaluated the Debtor’s collateral for the loan, or even sought the Debtor’s financial statements as the loan required. Nor were there any negative consequences, although the Debtor made no interest payments for a number of years.
When faced with the above kind of facts, alleging the “badges of fraud” may be critically important to the overall success of a Creditor’s forced collection proceeding. As mentioned at “Badges Of Fraud In Debt Collection, Divorce & Bankruptcy“, the badges include: a close relationship between the parties; a transfer outside the ordinary scope of business; inadequate consideration; knowledge of a creditor’s claim; and retention of control of property.
Copyright 2008 Fred L. Abrams