5 PERRY STREET, LLC VS. SOUTHWIND PROPERTIES, LLCÂ (C-21-15, CAPE MAY COUNTY AND STATEWIDE) ( 2017 )

NOT FOR PUBLICATION WITHOUT THE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.
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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).
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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.
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