Why Selling a Property to Avoid Paying a Judgment Doesn’t Work
I am often asked by worried property owners involved in a legal case whether they can simply sell their properties and ignore the case. After all, if the property owner liquidates everything, how can the opposing party collect a judgment? Is it not cheaper to liquidate rather than defend a case and pay a judgment?
The quick answer is that there is no law that prohibits a sale, but the seller probably will not like the consequences. If the opposing party discovers the property has been listed for sale, an emergency petition can be filed to stop the sale. But even if the seller can make a transfer without the opposing party’s knowledge, the sale can still be reversed.
Pennsylvania has a powerful law called the Voidable Transfers Act 12 Pa.C.S. secs. 5101-5110. The law was known as the “Fraudulent Transfers Act” before its recent amended. The name change was no accident. The new version of the law lowered the legal requirements for reversing a fraudulent sale.
The Voidable Transfers Act has two big implications for real estate investors and developers. First, the law presents a risk to investors who purchased property from a seller involved in a dispute. After paying the seller, the investor may be faced with the prospect of transferring the property back to the seller until the litigation with the complaining party is resolved. Reversal of a sale can place the investor in a situation where they must now chase the seller for repayment of their funds.
Second, the law can be used as a tool for investors. An investor who is owed money from a holder of real estate can use the law to assist with the recovery. Potential clients who come to me often wrongful assume that if properties are sold that a legal case is not worth it. That is not necessarily true. The Voidable Transfers Act is a possible tool to ensure there is a source of recovery.
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