Bank’s Perseverance Pays-off in Fraudulent Transfer Litigation

November 23, 2015
Michael Cortina
SmithAmundsen Financial Services Alert



Determination to see a case to the end recently paid-off for a client of SmithAmundsen. This matter began in 2011, during the height of the financial meltdown and the foreclosure crisis. A lender found itself needing to foreclose on a commercial strip center and to also sue the principal of the borrower who guarantied the loan. The judgment of foreclosure and sale resulted in a deficiency judgment of approximately $440,000.00. Collection proceedings against the debtors resulted in very few assets being discovered because all real estate owned by the borrower was either in foreclosure or already sold, and the guarantor lived in a mansion owned by his parents, leased his vehicle and had his assets in IRA’s and other un-attachable holdings.

Despite what seemed at first blush to be uncollectable judgments, the bank knew from several previous conversations with the guarantor that he had invested heavily in precious metals. The guarantor had constantly informed the bank how he had invested hundreds of thousands of dollars in silver and actively encouraged officers of the bank to do the same. After collection proceedings had begun, however, the guarantor simply indicated that the silver was “long gone” and that “there is no silver.”

Undaunted, and believing that there was in fact blood in the stone, the bank combed through its records and found that the borrower had listed millions of dollars’ worth of silver on its financial statement in order to induce the bank to make the loan on which foreclosure ultimately occurred. With this information in hand, the bank again pursued collection and specifically targeted the disbursement of the silver that the debtor owned at the time that the loan was made.

Silver HouseEventually, the bank discovered that just six months after it had made its loan to the debtor, all of the silver was transferred to the guarantor and his immediate family; the same day as this transfer occurred, the guarantor and his family again transferred the silver into a family LLC that was managed exclusively by the guarantor. It was later discovered that at some point in time, the family LLC transferred all of the silver into a trust controlled by the guarantor’s wife.

Once the bank learned of the existence and transfers of the silver, it asked SmithAmundsen what could be done to collect from the silver. After conducting research on the issues, it was determined that a lawsuit against the borrower, guarantor and his entire family alleging fraudulent transfers was the appropriate remedy. The bank agreed, and the lawsuit was filed.

The defendants in the fraudulent transfer case fought it every step of the way, but the bank proceeded full speed ahead. Settlement offers for 10-15% of the amount sought for recovery were considered but rejected by the bank. Eventually, the court ruled in the bank’s favor on a summary judgment motion and ordered the silver turned-over to the bank. The defendants, however, continued to fight. The defendants appealed the court’s decision and were even held in contempt of court for refusing to turn the silver over to the bank.

The appeal resulted in summary judgment in favor of the bank being affirmed with a unanimous decision by the appellate court. After this blow, the defendants finally conceded defeat. The defendants paid the original $440,000.00 judgment, plus 9% interest, plus all court costs, plus the bank’s attorneys’ fees. All in all, the defendants paid the bank nearly $650,000.00. It is unknown how much they paid their attorneys during this marathon litigation endeavor.

The perseverance of the bank and its refusal to believe that the borrower’s prized asset – silver – had simply vanished is what truly won the day. Once litigation began, the bank remained resolute, held the course and refused settlement offers of up to 50% of what was owed. In the end, the bank recouped every cent that it spent on the recovery effort.