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Stornawaye Properties, Inc. v. Reichstein

A-2087-02T5 (N.J. Super. App. Div. 2004) (Unpublished)

FRAUDULENT TRANSFERS—Although the four year limitations period under the Fraudulent Transfer Act is tolled by perjured testimony from the debtor, it starts running when a creditor, even a predecessor to the current creditor, ceases to rely on that testimony.

Several individuals formed a limited partnership to develop real property. They then obtained a bank loan. After seven years, the bank declared the loan in default and filed a complaint against the partnership and the guarantors. By deed, one partner transferred his interest in his marital home to his wife for $1.00. Two months later, the bank obtained partial summary judgment against the partnership and the guarantors. During a supplemental proceeding, the partner who transferred the marital home testified that he held no interest in real property and that his wife owned their house. Nine years after that, transfer was discovered. A buyer of the judgment then filed a complaint against the man and his wife to set aside the conveyance. The transferee asserted that the complaint was barred by the statute of limitations. His motion for summary judgment was granted.

The judge held that the conveyance was, in fact, a fraudulent transfer and was subject to the remedies available to creditors under the Fraudulent Transfer Act. He also held that, but for the perjured testimony of the partner, the four-year statute of limitations would have run out. However, the lower court found that the transferor’s perjured testimony tolled the four-year limitations period until the creditor ceased to rely on that testimony or “until other circumstances put the creditor on notice to conduct an asset search, and for the time thereafter that a creditor exercising reasonable diligence could discover the fraudulent transfer.” Under the facts presented, to the lender’s dismay, the lower court found that the bank’s reliance on the testimony ended many years before the complaint was filed, and therefore the statute of limitations began to run. Specifically, a predecessor to the current owner of the judgment (the FDIC) had conducted an extensive investigation more than four years earlier. Because the FDIC did not initiate litigation then, the statute of limitations expired. The Appellate Division concurred.

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