Kaler v. Vasvick, 604 B.R. 810

Background

Darrell and Susan Vasvick owned and lived at 1509 17th Street South, Fargo, since 1976; they conveyed the property to their son Justin on April 30, 2007. Justin executed a mortgage/note to purchase the home; Debtors received proceeds that paid off their prior mortgage.
After the conveyance the Vasvicks continued to live at the property and made most mortgage, tax, insurance, maintenance and improvement payments (either directly to the lender, to Justin, or via joint accounts). From May 2007–May 2018 Debtors paid ~$164,036 in rent/mortgage-related amounts and spent roughly $23,303 on deck/roof repairs and $9,686 on carpet.
Debtors were heavily indebted (including a large SBA debt) at the time of the transfer; they later received an inheritance in 2015 and filed Chapter 7 on December 15, 2016.
Trustee sued under 11 U.S.C. § 548 seeking to avoid transfers as fraudulent: (A) actual fraud under § 548(a)(1)(A) (tried in 2019) and (B) constructive fraud under § 548(a)(1)(B) (previously dismissed by summary judgment). Trustee sought recovery of repair/improvement payments and other amounts.
The court found facts showing: continued possession/use by Debtors, familial transfer, payments by Debtors for mortgage and improvements, inconsistent/fictional lease arrangements, and evidence (including witness testimony) that the transfer was intended to protect the house from creditors.
Court concluded Debtors transferred the property with actual intent to hinder, delay or defraud creditors and that Justin did not act in good faith; avoided and awarded recovery for specific post-transfer improvement/maintenance payments.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the 2007 conveyance and subsequent payments are avoidable as actual fraudulent transfers under § 548(a)(1)(A)	Trustee: Debtors transferred the property to Justin to shield it from creditors; badges of fraud and direct testimony support intent to defraud	Defendants: Transfer was a bona fide sale and landlord/tenant arrangement; payments and lease show fair consideration and legitimate purpose	Held for Trustee: court found multiple badges of fraud, direct evidence of intent, and that the presumption of fraud was not rebutted; transfer was made with actual intent to hinder, delay or defraud creditors
Whether the actionable transfers within 2 years of filing are avoidable	Trustee: Specific post-transfer improvements and maintenance within the 2-year window (deck/roof, carpet) are avoidable	Defendants: All payments constituted fair value/consideration and should bar avoidance	Held for Trustee: court avoided payment for deck/roof and carpet expenses as transfers under § 548(a)(1)(A)
Whether Justin may assert § 548(c) good-faith/value defense	Trustee: Justin was on inquiry notice and participated in the scheme; cannot claim good faith	Justin: He provided value and relied in good faith as purchaser/owner/lessor	Held for Trustee: Justin failed to prove good faith; defense rejected
Whether Trustee may amend complaint to include taxes and insurance payments	Trustee: sought to conform pleadings to evidence and include taxes/insurance	Defendants: late notice prejudicial	Held: Amendment allowed only as to carpet expenses; denied as to tax and homeowner’s insurance claims due to prejudice

Key Cases Cited

BFP v. Resolution Trust Corp., 511 U.S. 531 (1994) (distinguishes actual and constructive fraud under § 548)
In re Sherman, 67 F.3d 1348 (8th Cir. 1995) (lack of equivalent value is not required to prove actual fraudulent intent)
Ritchie Capital Mgmt., LLC v. Stoebner, 779 F.3d 857 (8th Cir. 2015) (badges of fraud framework for inferring actual intent)
Kelly v. Armstrong, 141 F.3d 799 (8th Cir. 1998) (presumption of fraudulent intent shifts burden to transferee to prove legitimate purpose)
Kaler v. Craig (In re Craig), 144 F.3d 587 (8th Cir. 1998) (trustee’s burden under § 548 and Eighth Circuit precedent on avoidance)
In re Huynh, 392 B.R. 802 (Bankr. D.N.D. 2008) (list of badges of fraud used in local decisions)