Constructive Fraud

What is Constructive Fraud?

There are numerous laws governing transactions in the business world today.   Any time one of those transactions includes fraud, the parties who have been defrauded have the opportunity to file suit to gain restitution.   However, constructive fraud is another type of deceptive business practice that results in someone being defrauded, even if there was no knowledge or real intent to defraud, also known as Civil Fraud.   Generally, constructive fraud, or a constructive fraudulent conveyance, occurs when property is transferred for less than its equivalent value, and addition conditions exist, such as the original owner facing insolvency.

Constructive Fraudulent Transfer vs. Actual Fraud

Constructive fraud generally occurs when someone transfers property without receiving reasonably equivalent value for the transfer.   This may happen, for example, when parents transfer home title ownership to the family home to a child to facilitate their inheritance wishes.   If the parents subsequently must file for bankruptcy, they may be charged with constructive fraudulent transfer, avoid losing that home to satisfy creditors.   In such cases, they may lose the family home anyway.   Even though the fraud was unintentional, it still becomes illegal in light of the bankruptcy action.

Penalties for Constructive Fraud

Whether the constructive fraudulent transfer was performed with an intent to defraud or not, if property was transferred illegally, the victim has two options:

  • Restitution of the property or the value of the property illegally transferred
  • Damages for willful defrauding of another

Every case is different, and the specific statutes vary by state, but constructive fraudulent conveyance is difficult to prove.   In many cases, common sense and common law principles may guide courts in determining if an actual constructive fraudulent transfer violation or actual fraud has occurred, to what extend the act was willful, and what the penalties should be.

Legal Help from a Lawyer

For those who are inadvertently caught in such an infraction of the law, a contract attorney may be able to provide a defense that will limit the damages charged to the defendant.   In addition, all parties to such legal transactions should consult an attorney or perform a reasonable investigation of the facts before entering into these agreements.

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