Court Opinion

ID: 4181152
Source: CourtListenerOpinion
Date Created: 2017-06-27 13:10:16.946227+00
Date Added: 2024-06-11T14:39:12.239500
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                      APPROVAL OF THE APPELLATE DIVISION
     This opinion shall not "constitute precedent or be binding upon any court."
      Although it is posted on the internet, this opinion is binding only on the
         parties in the case and its use in other cases is limited. R.1:36-3.

                                       SUPERIOR COURT OF NEW JERSEY
                                       APPELLATE DIVISION
                                       DOCKET NO. A-0178-15T2

5 PERRY STREET, LLC,

        Plaintiff-Respondent,

v.

SOUTHWIND PROPERTIES, LLC,
a/k/a SOUTHWIND PROPERTY, LLC,
and DEBORAH LONGSTREET a/k/a
DEBORAH WATSON a/k/a DEBORAH
WATSON LONGSTREET,

     Defendants-Appellants.
___________________________________

              Argued November 9, 2016 – Decided June 27, 2017

              Before Judges Ostrer and Leone.

              On appeal from the Superior Court of New
              Jersey, Chancery Division, Cape May County,
              Docket No. C-21-15.

              Peter A. Ouda, attorney for appellants.

              Christopher Gillin-Schwartz argued the cause
              for respondent (Barry, Corrado & Grassi, P.C.,
              attorneys; Mr. Gillin-Schwartz, on the brief).

PER CURIAM

        Defendants     Southwind     Properties,     L.L.C.    (Southwind)         and

Deborah Longstreet appeal from the Chancery Division's July 24,
2015 order voiding, as a fraudulent transfer, an April 29, 2015

deed of conveyance of real property located at 5 Perry Street in

Cape May (the Property) from Southwind to Longstreet.      The case

arises out of Southwind's default on two mortgages that encumbered

the Property. Following the entry of two judgments of foreclosure,

Southwind conveyed the Property to Longstreet, Southwind's only

member, on the eve of a Sheriff's sale.    Plaintiff 5 Perry Street,

LLC (Perry) was the successful bidder at the Sheriff's Sale.      The

order also declared that Perry obtained good title.     We affirm.

     The pertinent facts are undisputed.    Southwind operated a bed

and breakfast at the Property.   Two non-institutional lenders held

mortgages on the property.       Katie Morris Regan held a first

mortgage, executed on October 1, 1999, with an initial principal

amount of $247,000, maturing on January 1, 2011.1       Donald Katz

held a second mortgage, executed on June 30, 2004, with an initial

principal amount of $11,600 and a maturity date of June 30, 2005.

Pursuant to the judgments of foreclosure entered in August and

September 2014, the court ordered payment of $221,166.61 to the

first mortgagee and $25,443.53 to the second mortgagee.

     In 2015, Southwind obtained four adjournments of scheduled

Sheriff's sales.   A sale was ultimately scheduled for April 29,

1
  The mortgage note required a balloon payment at maturity, but
payments were based on a thirty-year payment schedule.

                                 2                           A-0178-15T2
2015.   In the meantime, Longstreet attempted to refinance the

Property, which she estimated had a market value exceeding $1.4

million.    However, she was unable to consummate a transaction

before April 29.

      Instead, Longstreet filed a personal Chapter 13 bankruptcy

petition on April 28, 2015.2       She later admitted that she did so

"in an effort to save valuable properties from being foreclosed."

She also executed a deed transferring the Property from Southwind

to   her.   The    consideration    stated   was   $1   and   "Balance    of

outstanding mortgage $80,000.00."3        She filed the deed the next

day, an hour and a half before the Sheriff's sale.            She claimed

her attorney notified the Sheriff's Office and first mortgagee of

the deed, but Perry disputed her contention, which was unsupported

by the attorney's certification.        The Sheriff's sale proceeded as

scheduled, and Perry prevailed in the auction with a $485,000 bid.

2
  The schedules attached to her petition listed the mortgage debt
to the two mortgagees as creditors holding secured claims, and
stated the Property's value as $1,486,100.
3
  The $1 consideration was typed into the deed. Longstreet stated
that she wrote in the words, "Balance of outstanding mortgage
$80,000.00." She claimed that by doing so, she intended to assume
personal liability under the mortgages, although the total due,
as noted, was close to $250,000. Notably, the Seller's Residency
Certification/Exemption that she signed indicated the only
consideration was $1.

                                    3                              A-0178-15T2
Perry paid a twenty percent deposit, then paid the balance on May

20, 2015, and received the Sheriff's deed for the Property.

     Thereafter, Longstreet filed a motion in Bankruptcy Court to

void the Sheriff's sale, which the court denied.             The Bankruptcy

Court later vacated the automatic stay, to permit Perry to proceed

with a quiet title action in Superior Court.

     Perry's verified complaint to quiet title followed.                  The

court entered Perry's proposed order to show cause, directing

Southwind and Longstreet to answer Perry's complaint and to show

cause why a judgment should not be entered voiding the April 29

deed, and declaring that defendants had no remaining interest in

the Property and that Perry had good and valid title. Perry sought

resolution in a summary proceeding.4

     In her written opposition, Longstreet discussed her efforts

to negotiate a settlement with the first mortgagee and to obtain

separate financing of her debts.         She described her personal and

financial    difficulties,     noting    that   Southwind's    charter    was

revoked for failure to file annual reports, and that she operated

the LLC as if it were a sole proprietorship (although, notably,

she never assumed personal liability for Southwind's debts).              She

admitted    that   Southwind   not   only   defaulted   on    its   mortgage

4
  The record does not include a formal motion seeking resolution
in a summary manner. See R. 4:67-1.

                                     4                               A-0178-15T2
payments, but also failed to pay taxes on the Property.                           She

claimed      that    Southwind's        transfer    of    the    property   to    her

personally, on the eve of the Sheriff's sale, was necessary "to

rehabilitate the LLC and satisfy the outstanding mortgages."                      She

contended that the deed reflected that she was assuming payment

for the outstanding mortgages, although the $80,000 noted in the

deed was far less than the judgments.                     She asserted that she

obtained a firm financing commitment in June 2015 for $650,000,

which would enable her to satisfy all secured claims against the

Property.     Defendants also challenged Perry's standing to seek the

relief identified in its complaint.

       At oral argument, Perry's counsel contended that the transfer

from Southwind to Longstreet should be voided because it was

fraudulent,         claiming     that     various       badges    of    fraud    were

demonstrated.        Defendants' counsel admitted there were no disputed

facts, but contended that Perry had failed to establish by clear

and convincing evidence an actual intent to defraud.                    He contended

that   the    transfer     was    motivated        by    Longstreet's    intent     to

rehabilitate the debtor.

                                           5                                 A-0178-15T2
      The judge reviewed the facts set forth above.5              He concluded

that the Property's transfer "smacks of fraud [to] such a degree

as   warrants   summary   disposition."         The    judge   concluded    the

conveyance was intended to secure the protection of the bankruptcy

stay and delay the Sheriff's sale.       He rejected Longstreet's claim

that she assumed Southwind's debt, noting that the conveyance was

not made with the mortgagees' notice or consent, and that the

conveyance was an act of default as to each mortgagee.               The judge

stayed his July 24, 2015, order for thirty days, after which it

went into effect.      In the two months that followed, the Sheriff

executed a writ of possession and evicted defendants from the

Property.

      Defendants' appeal followed.        They present two arguments.

They contend Perry lacked standing to seek the relief the court

granted.    They also contend that there existed a genuine factual

dispute as to whether Longstreet had the actual intent to defraud

creditors or future purchasers of the Property.

      Defendants'    arguments   lack   merit    and    warrant    only   brief

discussion.       R. 2:11-3(e)(1)(E).     Perry obtained standing to

challenge   the    Southwind-to-Longstreet       transfer      based   on   its

5
  He also referred to the numerous adjournments that he granted
and his efforts to impress upon Longstreet, who sometimes
represented herself, about where she stood procedurally.

                                    6                                  A-0178-15T2
successful bid at the Sheriff's sale, its subsequent payment of

the purchase price, and its receipt of the Sheriff's deed.      As a

matter of equity, Perry stands in the shoes of the judgment

creditors for the purpose of challenging the transfer.    See Fid.

Union Tr. Co. v. Union Cemetery Ass'n, 134 N.J. Eq. 539, 541 (E.

& A. 1944) (stating, "it is a settled rule that purchasers at [a

Sheriff's sale], if not already parties to the suit, are regarded

to a certain extent as parties to it, to be under the control of

the court on the one hand, and its protection on the other.").

Also, in view of defendants' counsel's concession that there were

no disputed facts, we discern no error in the court proceeding in

a summary manner. See United Jersey Bank v. Vajda, 299 N.J. Super.

161, 164 (App. Div. 1997).

     The undisputed facts established that Longstreet had both

constructive and actual intent to defraud her judgment creditors.

Southwind was presumed insolvent because it was not paying its

mortgage obligations or taxes. See N.J.S.A. 25:2-23(b). Moreover,

Southwind's transfer of its only significant asset to an "insider,"

Longstreet, see N.J.S.A. 25:2-22, for consideration that was far

less than the Property's value, rendered it insolvent as its debts

exceeded its assets, see N.J.S.A. 25:2-23(a), and left it with

assets that were unreasonably small for its lodging business.    See

N.J.S.A. 25:2-25(b)(1).

                                7                           A-0178-15T2
     In view of these facts, the transfer was fraudulent on several

grounds.    First,    the   transfer     was   fraudulent   as   to   present

creditors under N.J.S.A. 25:2-27(a), because Southwind, as the

debtor, "made the transfer . . . without receiving a reasonably

equivalent value in exchange for the transfer . . . and the debtor

was insolvent at that time or . . . became insolvent as a result

of the transfer . . . ."      The transfer was also fraudulent under

N.J.S.A. 25:2-25(b)(1), because "the debtor made the transfer

. . .   [w]ithout    receiving   a   reasonably     equivalent    value      in

exchange for the transfer . . . and the debtor . . . [w]as engaged

. . . in a business . . . for which the remaining assets of the

debtor were unreasonably small in relation to the business . . . ."

     Finally, the transfer was fraudulent under N.J.S.A. 25:2-

25(a) because "the debtor made the transfer . . . [w]ith the actual

intent to hinder, delay, or defraud any creditor of the debtor

. . . ."   Actual intent was established by the fact that "[t]he

transfer . . . was to an insider," N.J.S.A. 25:2-26(a); the

transfer was made after suit and entry of judgment, see N.J.S.A.

25:2-26(d); "[t]he transfer was of substantially all the debtor's

assets," N.J.S.A. 25:2-26(e); the consideration was far less than

the value of the transferred asset, see N.J.S.A. 25:2-26(h); and

Southwind was insolvent or became insolvent after the transfer.

See N.J.S.A. 25:2-26(i).

                                     8                                A-0178-15T2
     Longstreet's contention that she intended (eventually) to

make her creditors whole is of no moment.               She admitted the

transfer was intended to foil the Sheriff's sale.              She put the

Property out of reach of her creditors, at least until she was

able to secure refinancing and unilaterally decided to make good

on the debts of the denuded LLC.            Yet, the Uniform Fraudulent

Transfer Act is intended to prevent just that kind of maneuver.

See Gilchinsky v. Nat'l Westminster Bank N.J., 159 N.J. 463, 475

(1999) (noting that the statute is designed to prevent a debtor

from "cheat[ing] a creditor by removing his property from the jaws

of execution." (internal quotation marks and citation omitted)).

     In any event, the transfer of the property from Southwind to

Longstreet   was    void   because   of   the   preexisting   lien   of   the

foreclosure judgments:

          A sheriff's sale in enforcement of that lien
          and the deed delivered pursuant thereto will
          vest in the purchaser at the sheriff's sale,
          despite the conveyances of the properties
          since the judgment was entered,

                   . . . as good and perfect an estate
                   to the premises therein described as
                   the execution debtor was seized of
                   or entitled to at or before the
                   judgment for the enforcement of
                   which the execution issued, as fully
                   to all intents and purposes as if
                   the execution defendant had sold
                   such real estate to such purchaser,
                   and had received the consideration

                                     9                               A-0178-15T2
                money   and  signed,   sealed    and
                delivered a deed for the same.

         [Furnival Mach. Co. v. King, 142 N.J. Super.
         251, 258 (App. Div. 1976).]

    Here, both Regan and Katz obtained foreclosure judgments

almost seven months before Southwind's transfer to Longstreet.

Therefore, the trial court properly found the April 28 deed void

and that Perry had good and valid title.

    Affirmed.

                               10                        A-0178-15T2