The Uniform Fraudulent Transfer Act (UFTA) was renamed the Uniform Voidable Transactions Act (UVTA) in July 2014 in an effort by the Uniform Law Commission (ULC) to provide greater clarification for the courts, bring it into line with the Uniform Commercial Code and Bankruptcy Code, and to better delineate its application to a fraudulent transfer action.
Under the UFTA, a transaction may be deemed fraudulent if a debtor transfers property in attempt to delay, defraud or hinder a creditor’s attempt to collect on a debt. If such a transfer is deemed fraudulent, the transaction may be voided.
Other noteworthy changes include:
Standard of proof. Unless a debtor admits to a fraudulent transfer action, creditors have had difficulty proving such an action occurred since many courts have applied the more stringent “clear and convincing” evidentiary standard commonly associated with civil fraud actions. The UVTA now requires that such actions be decided based on a “preponderance of the evidence” standard, thus lowering the burden of proof bar for creditors.
Strict foreclosure treatment. Under the UTVA, strict foreclosures are no longer considered a defense to a voidable transaction action. Following California’s lead, the UTVA treats a strict foreclosure as the equivalent of a voluntary transfer to a third party and, while not automatically protectable, can be voidable under the UVTA. However, creditors can still show that a foreclosure sale was conducted in a commercially reasonable manner and in good faith to shield its claim to the property from other creditors.
Statute of limitations. California has a statute of limitations of four — and not to exceed seven — years for fraudulent action claims (Cal. Civ. Code § 3439.09), while some states have none. The question of which state’s laws should apply has been a subject of intense litigation and the UTVA now seeks to standardize the question of statute of limitations by applying the law of the debtor’s state of residence when the transfer was made to fraudulent transfer claims. If the action involves a multi-jurisdictional business, the location of the company’s chief executive office will govern the adjudication of the claim.
The UTVA does not impose an automatic effective date; rather, the ULC has left it to each state’s legislature to adopt or reject the changes made by the UTVA.
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