Reding v. Mason (In Re Mason)

ORDER ON OBJECTION TO DISCHARGE, COMPLAINT TO SET ASIDE A FRAUDULENT CONVEYANCE, AND COMPLAINT TO DENY THE DEBTOR’S CLAIM OF EXEMPT PROPERTY, FILED BY THE TRUSTEE RODNEY R. STEELE, Bankruptcy Judge. By an opinion entered today, the court has concluded in this case that the objection to discharge is not well taken, that the debtor’s claim of a homestead exemption in certain property is due to be denied, and that the complaint filed by the trustee to set aside a fraudulent conveyance was proved, and it is therefore ORDERED: 1. The objection to discharge is hereby denied. 2. The complaint to deny the debtor his claim of a homestead exemption in property at Lake Martin, Route 1, Equality, Alabama, more particularly described as Lots 54 and 55 of Castleberry Estates, is hereby granted, the exemption is denied, and the trustee is authorized to take up that property as property of this estate, for the purposes of liquidating it. 3. The debtor’s conveyance on July 29, 1980, recorded August 6, 1980, of his property at 404 Lurene Circle, Montgomery, Alabama, is hereby set aside as a fraudulent conveyance, and the trustee under Title 11, United States Code, Section 544 is authorized to take up that property and dispose of it as an asset of this estate, subject, however, to valid liens and encumbrances, and subject also to the equitable claim or right of John Paul Stanford to be paid from the proceeds from the sale of that house if trustee sells it, to the extent of the value given by John Paul Stanford or which was secured to John Paul Stanford by that conveyance. OPINION The parties submitted upon the complaint and the answers filed on July 16, and in open court on July 23, 1984. The trustee has filed a brief in this case on July 30, 1984. On the issue of homestead rights in the property claimed as a homestead at Lake Martin, Route 1, Equality, Alabama, the evidence clearly shows that although the debtor has owned this property for some years, he has not used that property as his residence. He spends some time at that place each week or each month. But he is not registered to vote in Elmore County, and is registered to vote in Montgomery County. Moreover, he spends most of his time at the house at 404 Lurene Circle, Montgomery, which once was his home-place. He still resides there. The utilities there are in his name. They were changed after bankruptcy and apparently in anticipation that this complaint relating to his homestead would be filed. *384 The testimony of an attorney, Mr. Frank Riggs, also supports this finding, since he testified that in a deposition taken by him, the debtor testified that he resided at 404 Lurene Circle. The conclusion must be in this case that the debtor does not have a residence at Equality, Alabama, Route One, on those lots numbered 54 and 55 of Castleberry Estates, and that he cannot claim a homestead in that property. See In re Brasington, 10 B.R. 76 (1981). As to the charge that the conveyance made by James D. Mason, Sr., to John Paul Stanford, his brother-in-law on July 29, 1980, was a fraudulent conveyance under the laws of Alabama, the findings are that such a conveyance was made at that time and between those parties. See Plaintiff’s Exhibit No. 1. And it appears that the conveyance was made at least in part, to secure an indebtedness which this debtor owed to his brother-in-law. The amounts of these debts are in controversy, but it appears that the debt was substantial, and according to Stanford’s testimony, amounted to approximately $20,000. He was owed approximately $11,000 at the time he received the mortgage, and thereafter loaned an additional $9,000 to the debtor. His testimony was that the house is probably worth $60,000, and may be worth as much as $70,000 or $80,000. It is a four-bedroom, two-bath home, with 2500 to 3000 square feet. In addition, the evidence supports a finding that the debtor continued to make the mortgage payments on the house after he conveyed it to his brother-in-law and that there is now a mortgage balance of approximately $17,000 on it. It is also without serious contradiction that the debtor conveyed this property to his brother-in-law when he had considerable other indebtedness owing, and that he continued to live in the home after he conveyed it. We must conclude from the testimony that this debtor did, indeed, fraudulently transfer the property at 404 Lurene Circle to his brother-in-law while he has other creditors owing, and that the value of the house exceeded the amount which he owed his brother-in-law and the amount of the mortgage. But we cannot say that at the time it was conveyed that it was conveyed for a substantially inadequate consideration. Nor can we draw the conclusion that this defendant, John Paul Stanford, received the property with knowledge that debtor had any intention of defrauding his creditors. He was simply seeking to secure an antecedent debt which had been owed to him since at least 1978. Under these circumstances, the conclusion must be that there is, indeed, a fraudulent conveyance, but that the conveyance will be recognized only as a security for the value actually paid by John Paul Stanford in this case. Thus the trustee in this case may take up this property and have its title for the purpose of liquidating the property at 404 Lurene Circle, but must recognize in that connection, not only the mortgage which is owed on the property, but the value actually paid by John Paul Stanford for which the conveyance stood as security. See J. C. Jacobs Banking Co. v. Campbell, Ala.S.Ct. 1981, 406 So.2d 834; Central Bank of Alabama, N.A. v. Ambrose, Ala.S.Ct.1983, 435 So.2d 1203. An appropriate order will enter. *385