In rе: ROBERT TRAINA AND ANN TRAINA, Debtors. AUTOSOURCE CAPITAL, INC., Plaintiff, vs. ROBERT TRAINA AND ANN TRAINA, Defendants.
Case No. 11-57061 CN
Adversary No. 11-5313
UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA
October 25, 2013
Charles Novack, U.S. Bankruptcy Judge
Chapter 7; Entered on Docket October 30, 2013; Entered on Docket October 25, 2013
On June 28, 2011 AutoSource Capital, Inc. commenced this adversary proceeding seeking a non-dischargeable judgment against defendants Robert Traina and Anna Traina and the denial of their chapter 7 discharge under
From August 2001 through August 2010, the Trainas (who were a married couple) resided at a single family residence located at 1262 Hillсrest Drive in San Jose, California. During most of that decade, Anna Traina was a licensed real estate broker who operated a real estate brokerage firm, Contempo Realty.1 While Robert Traina was also a licensed real estate agent, he worked primarily as a general contractor. The Trainas also оwned several investment properties, including a 50 unit apartment building in Stockton, California, and a town home and condominium in Sacramento, California.
By October 2009, the “Great Recession” had significantly affected Contempo Realty and the Trainas’ finances, and they were struggling to pay the Hillcrest Drive mortgage. After a failed attempt to modify the Hillcrest Drive mortgage, they consulted with a bankruptcy lawyer in December 2009. The Trainas decided not to file a bankruptcy at that time, and instead opted to sell Hillcrest Drive and use the net sales proceeds to purchase a more affordable residence.
And that is exactly what the Trainas did. In March 2010, they sold the Hillcrest Drivе property for $1.35 million, netted $125,328.87 from the sale and used those funds, in May 2010, to purchase a residence located at 16635 Trail Drive, Morgan Hill, CA (“Trail Drive“). The Trainas have primarily resided in the Trail Drive property since that time, and generally have paid the mortgage, property taxes, insurance premiums, utility bills, and all expenses associatеd with that property.
The Trainas, however, did not take title to the Trail Drive property nor sign the note and deed of trust required to purchase it. Instead, Anna Traina‘s parents - Ron and Christina Wallace - took title and signed the note and deed of trust. The Wallaces never moved into the Trail Drive property and never intended to do so. Indeеd, when the Trainas moved into the Trail Drive property, Christina Wallace was a long-time resident of a senior living facility.
Following the Hillcrest Drive sale, the Trainas did not deposit the $125,328.87 sales proceeds into their bank account. Instead, they deposited these funds into an escrow account in the Wallaces’ names to demonstrate the Wallaces’ ability to fund the Trail Drive purchase. When the Wallaces needed an additional $20,000 to complete the down payment, Anna Traina wired these funds from her account into her father‘s bank account.
Ron Wallace and Anna Traina both testified that the Trainas fully funded the Trail Drive down payment. Ron Wallace also testified that while he and his wife would sign the note and deed of trust, the Trainas would make the monthly note payments and cover all other expenses associated with the property, including insurance payments, taxes, and general maintenance items.
The Trail Drive escrow closed on May 20, 2010. The final purchase price was $699,000, and the balance of the purchase price was financed by a $559,200 note and deed of trust with Bank of America. Ron and Christina Wallace were the only obligors on the note.
The Trainas filed their chapter 7 petition on July 28, 2011, and identified the Trail Drive property as their residence. They did not, however, list the Trail Drive property on their Bankruptcy Schedule A, assert any exemption against the property on their Schedule C or list the Bank of America obligation on their Schedule D. While they identified a monthly $2,960 housing expenditure on their Schedule J, they did not list any expense for property insurance or taxes. The Trainas continued this deception on their Statement of Financial Affairs. In Section 2 of their Statement of Financial Affairs, the Trainas were required to identify “any amount of income received by the debtor other than from employment . . . during the two years immediately preceding the commencement of this case.” The Trainas did not list the Hillcrest Drive sales prоceeds. Section 10 of the Statement of Financial Affairs required the Trainas to “List all other property, other than property transferred in the ordinary course of business or financial affairs of the debtor, transferred either absolutely or as security within two years immediately preceding the commencement of the case.” The Trainas did not list the Hillcrest Drive sale or the funds transferred to the Wallaces to purchase the Trail Drive property.
The Trainas amended their bankruptcy schedules and Statement of Financial Affairs on October 12, 2011, immediately before their October 13, 2011 meeting of creditors. While they now disclosed the Hillcrest Drive sale on the amended Statement of Financial Affairs, they listed the sale price and purchase price as being virtually identical in order to mask their $125,000 net profit. The Trainas also did not, once again, disclose the significant monetary transfers to the Wallaces. Their amended bankruptcy schedules were equally disingenuous. While they amended their Schedule A to list thе Trail Drive property, they described title as “Debtor‘s parents currently on title.”2
LEGAL DISCUSSION
Under
Before this court addresses the merits of the
This court is hard-pressed to describe their initial set of schedules and Statement of Financial Affairs as anything but fraudulent. Furthermore, the amended bankruptcy documents did little to ameliorate this problem, as even these amendments concealed critical facts from the Trustee - who was then compеlled to engage in “costly investigations” and litigation to capture valuable assets for this bankruptcy estate. The Trainas did not file their amended documents until the eve of their § 341 meeting,5 thus undermining the Trustee‘s efforts to conduct a meaningful examination. More importantly, the Trainas’ amended documents still did not fully describe their interest in the Trail Drive prоperty and the means by which it was purchased. The court finds that the amended bankruptcy documents did not absolve the Trainas of any potential liability under
A. The Defendants’ Bankruptcy Documents Contained False Oaths
Errors and omissions from a debtor‘s bankruptcy schedules and statements can constitute false oaths under
B. The Omissions were Material
The Trainas’ false oаths relate to the only property which had significant value to the bankruptcy estate - the Trail Drive property and the fraudulent conveyance claim against the Wallaces. Accordingly,
C. The Trainas Acted “Knowingly” When they Made their False Oath
A debtor act must act “knowingly” when making a false oath. In re Roberts, 331 B.R. at 882; see also
The fact that their omissions all related to a carefully engineered real estate transaction that shielded their most significant asset only confirms this court‘s finding that these were deliberate and conscious omissions. Accordingly, the court finds that the Trainas acted “knowingly” when they signed their Petition, Bankruptcy Schedules and Statement of Financial Affairs and failed to make material disclosures regarding the Hillсrest Drive sale and Trail Drive purchase.
D. The False Oaths were Made Fraudulently
To demonstrate fraudulent intent under
As discussed above, the only references to the Trail Drive property in their original bankruptcy documents identified it as their residence on the Petition, for which there was a monthly housing cost on Schedule I (which the Trustee could have construed as merely rent). The Trainas did not state that they paid the property taxes and insurance, failed to disclose the Hillcrest Drive sale (which closed within two years of the petition date), failed to state that they netted $125,000 from its sale, and failed to disclose that they transferred approximately $145,000 to the Wallaces (again within two years of the petition date) to fund the purchase of the Trail Drive property. It would be impossible for any interested party reading their bankruptcy documents to ascertain the true nature of the Trainas’ interest in Trail Drive. Under these circumstances, the court can reasonably infer that the Trainas’ material omissions were fraudulent, and their less than truthful amendments simply reinforce this finding.
CONCLUSION
AutoSource has established, by a preponderance of the evidence, all the elements of
* * * END OF ORDER * * *
COURT SERVICE LIST
Recipients are ECF participants