James M. MacDonald II loaned Joseph Gayton $325,000, which was not secured by real estate or any other asset.
On Feb. 2, 2001, before repaying the debt to MacDonald, Gayton conveyed his joint-tenancy interest in the family home to his wife, Monica, by a quitclaim deed.
Before the transfer, Gayton and Monica held title to the home as joint tenants. The quitclaim deed was recorded with the county recorder of deeds on March 15, 2001.
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MacDonald, as trustee and sole beneficiary of a retirement plan, filed a lawsuit against Gayton on Aug. 7, 2003, for nonpayment of the $325,000 debt. But Gayton died on Nov. 26, 2003, without any assets. On Dec. 22, 2003, the court entered a judgment in favor of MacDonald for $357,140, including unpaid interest against Gayton’s estate.
On Jan. 16, 2004, MacDonald brought this lawsuit against Gayton’s estate and Monica to set aside Gayton’s quitclaim deed under the Uniform Fraudulent Transfer Act (UFTA).
The court ruled MacDonald was not entitled to any relief because he did not have a recorded judgment lien against Gayton’s family home or Gayton personally before his death.
As a result, the court reasoned, even if Gayton’s quitclaim deed to Monica was fraudulent, title to the home passed to Monica as Gayton’s surviving joint tenant, extinguishing any rights MacDonald might have in the home. MacDonald appealed.
If you were the appellate court judge would you rule Gayton’s title transfer to his home was fraudulent and MacDonald is entitled to a judgment lien against the home?
The judge said no!
Even if Gayton’s transfer of his joint-tenancy interest in his family home was fraudulent, the judge began, the UFTA would nullify that transfer and the property would be restored to the joint tenancy with right of survivorship.
In other words, he continued, the property would be treated as if Gayton’s title transfer had never occurred.
However, for MacDonald to reach the home for purposes of satisfying his $357,140 judgment against Gayton’s estate, the judge explained, MacDonald must have perfected his judgment lien on the home while Gayton was still alive and had a possible interest in it.
Since MacDonald did not record a judgment lien against the property while Gayton was alive, even if Gayton’s quitclaim deed was fraudulent, title to the home passed to Monica as surviving joint tenant unencumbered by the judgment, which was obtained after Gayton’s death, the judge ruled. MacDonald therefore is entitled to nothing, the judge concluded.
Based on the U.S. Court of Appeals decision in MacDonald v. Estate of Gayton, 469 Fed.3d 1079.
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