TRANSFER OF PROPERTY TO TRUST INVALID; DISTRICT COURT ALLOWS FORECLOSURE.

Carter and his wife acquired title to the property in 1985 with a deed of trust in favor of Sumitomo Bank of California; refinanced in 1992 with a deed of trust in favor of Citibank, National Association (successor to California Federal Bank). (Castaldi Decl., Ex. 1.) On May 5, 1992, the Carters purported to transfer the property to "Pamela Properties" by quitclaim deed for no consideration and then purported to transfer it back to the Carters on October 14, 1992 for no consideration, acknowledging in the transfer back that "Pamela Properties" was "an entity not capable of taking title." (Castaldi Decl., Exs. 3-4.) Finally, on November 30, 1992, the Carters purported to transfer the property to the Pamela Properties Trust, Richard Chieppo, Trustee ("the Trust"), via grant deed for no consideration and without payment of a transfer tax. (Castaldi Decl., Ex. 7; Decl. of Paula Davis ¶ 3.) Despite the purported transfer of the property, Carter continued to live in the property and paid the mortgage, taxes, utilities, and expenses associated with the property until his death. (Davis Decl. ¶¶ 4-7.)

All parties to the action, identified as having any possible claim to the property have disclaimed any interest in the property, had default judgment entered against them, or entered into a stipulation with the United States regarding lien priority. (Dkt. Nos. 3, 54, 59, 62, 75 (disclaimed interest); Dkt. Nos. 54, 83 (default judgment); Dkt. No. 33 (stipulation).)

The only question the Court need address is whether Carter's purported transfer to the Trust altered his interest in the El Cajon property. The Court finds Carter interest in the property was not altered by his purported transfer of the property to the Trust for three reasons. First, the Trust was only a nominee for Carter. Second, the transfer was fraudulent under the California Uniform Fraudulent Transfer Act ("UFTA"), Cal Civ. Code § 3439. Third, the Trust has disclaimed any interest in the property.

The Trust was only a nominee of Carter. Property, for purposes of § 6321, includes "property held by a third party if it is determined that the third party is holding the property as a nominee or alter ego of the delinquent taxpayer." Spotts v. United States, 429 F.3d 248, 251 (6th Cir. 2005) (citing G.M. Leasing Corp. v. United States, 429 U.S. 338, 350-51 (1977)). Factors considered in nominee determination include:

The transfer from Carter to the Trust was also fraudulent under the UFTA. "The UFTA permits defrauded creditors to reach property in the hands of a transferee." Mejia v. Reed, 31 Cal. 4th 657, 663 (2003). "Under the UFTA, a transfer is fraudulent, both as to present and future creditors, if it is made with actual intent to hinder, delay, or defraud any creditor of the debtor. Even without actual fraudulent intent, a transfer may be fraudulent as to present creditors if the debtor did not receive a reasonably equivalent value in exchange for the transfer and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation." Id. at 664 (citing § 3439.04-05) (internal quotations and citations omitted).

Carter's former wife stated that Carter placed the property in the Trust to avoid IRS obligations and Carter acknowledged as much in his divorce papers which indicated the property was placed in a trust to avoid a taking by the IRS. (Davis Decl. ¶ 2; Castaldi Decl., Ex. 11.) Section 3439.04 also lists a number of factors to consider in determining actual intent, including: whether the debtor retained possession or control of the property after the transfer; whether the value of the consideration received by the debtor was reasonably equivalent to the value of the property transferred; and whether the transfer occurred shortly before or shortly after a substantial debt was incurred. Carter never gave up possession of or responsibility for the property, no consideration was paid for the property, and the transfer was an attempt to avoid IRS collection efforts. (Davis Decl. ¶¶ 2, 4-7; Castaldi Decl., Ex. 7.)

Finally, the Trust has disclaimed any interest in the property. This is consistent with the Trust only holding the property as a nominee for Carter and a fraudulent transfer.

As the Trust was a mere nominee of Carter and the purported transfer was fraudulent, the United States is entitled to enforce its liens against the El Cajon property.

IT IS SO ORDERED.

DATED: May 27, 2010.