Opinion ID: 675099
Heading Depth: 5
Heading Rank: 2

Heading: Calculating the Value of the Consideration

Text: 70 Next, we turn to the issue of whether the consideration given in this case was in fact fair as that term applies in section 273. We do so, however, simply to correct a factual finding by the magistrate judge that we believe to be both clearly erroneous and material to the determination that the consideration was not fair under section 273. Accordingly, we offer no view, after correcting for this error, on the merits of the government's fraudulent conveyance claim under section 273. 71 To this end, we note that despite New York's attempt to codify when fair consideration is given, see N.Y. Debt. & Cred. Law Sec. 272 (McKinney 1990) (section 272), 2 our review of the case law convinces us that the concept can be an elusive one that defies any one precise formula. Indeed, [w]hat constitutes fair consideration under [section 272] must be determined upon the facts and circumstances of each particular case. Orbach, 482 F.Supp. at 119 (citing Halsey v. Winant, 258 N.Y. 512, 523, 180 N.E. 253, 256, cert. denied, 287 U.S. 620, 53 S.Ct. 20, 77 L.Ed. 539 (1932)). 72 Based on the facts and circumstances in this case, the parties agree that the inquiry into the sufficiency of the consideration given for the Property turns primarily on whether the value of the assumed mortgages approached the relative value of the Property. In concluding that it did not, the magistrate judge made a factual finding as to the monetary value of the consideration that is clearly erroneous. Specifically, in determining that value, the magistrate judge incorrectly found that the daughters assumed only the Columbia Bank mortgage whereas they took the Property subject to the Marine Midland mortgage, the second and larger of the mortgages on the Property. 826 F.Supp. at 1497. A review of the terms of the conveyance set forth in the deed, however, unequivocally shows that the daughters assume[d] and agree[d] to pay  the Marine Midland mortgage as well as the Columbia Bank mortgage as consideration given for the Property. (emphasis added). Because we believe this distinction is crucial to determining the fairness of the consideration under the method utilized by the magistrate judge, we pause to review the magistrate judge's finding as to the precise value of the consideration given by the daughters before proceeding to evaluate its fairness under New York law. 73 The district court found the value of the Property to be $85,657. Id. It then credited the principal balance on the Columbia Bank mortgage assumed by the daughters, $10,469.29, as consideration for the conveyance. Id. Because the magistrate judge was under the misconception that the daughters took the Property subject to rather than in assumption of the $47,328.65 balance remaining on the Marine Midland mortgage, however, he refused to credit that additional amount towards the value of the consideration. Instead, he reasoned that the conveyance of the Property subject to the Marine Midland mortgage served only to reduce the relative value of the Property conveyed to the daughters by $47,328.65, the amount of the balance remaining on the Marine Midland mortgage, and thereby reduced the relative value of the Property from its fair market value of $85,657 to $39,328.35 [sic]. Id. Using the latter figure, the magistrate judge found that Kelly and Mary received property valued at $39,328.35 in return for consideration valued at $10,469.29 and concluded that the value of the Property conveyed was nearly four times greater than the amount of consideration paid. Id. 74 By contrast, had the magistrate judge credited Mary and Kelly with the assumption of both mortgages as set forth in the deed, the total consideration given would have been the sum of the outstanding balances on both mortgages or $57,797.94. Because the daughters assumed, rather than took subject to, the Marine Midland mortgage, moreover, the fair market value of the Property, under the method of analysis employed by the magistrate judge, would remain at $85,657 rather than being reduced by the outstanding balance of the Marine Midland mortgage because, like the Columbia Bank mortgage, the daughters assumed rather than took subject to its obligation. Under his approach, therefore, the magistrate judge should have evaluated the adequacy of consideration valued at $57,797.94 given for Property with a fair market value of $85,657. 75 In our view, therefore, the government's fraudulent conveyance claim under section 273 rises or falls on whether it can prove that consideration of $57,797.94 is disproportionately unequal to the value of the Property as considered in the context of a forced foreclosure proceeding. Here, however, the magistrate judge not only improperly allocated the burden of proof, an error of law, but made a clearly erroneous factual finding that the daughters took the Property subject to rather than in assumption of the Marine Midland mortgage. Accordingly, the analysis underlying the finding that the daughters gave inadequate consideration under section 273 is tainted and requires us to remand the issue for further findings by the district court after correcting for these errors of law and fact.