No Fraud Where Misrepresentations Made After Money Was Obtained

The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

Marcusen v. Glen (In re Glen), 427 B.R. 488 (B.A.P. 8th Cir. (Minn.) 4/9/10) (Schermer, J.).

Case Summary:

No Fraud Where Misrepresentations Made After Money Was Obtained

The Eighth Circuit BAP reverses the bankruptcy court order holding a debt nondischargeable under §523(a)(2)(A), where the alleged misrepresentations were made after the loan was made. Debtors were developers who obtained money from their in-laws to build homes. They gave the in-laws promissory notes and mortgages, but the in-laws failed to record the mortgages. Later, when the debtors needed more funds to complete the projects, they went to third party lenders and gave additional promissory notes and mortgages, which were recorded. The debtors did not tell the third-party lenders about the mortgages held by the in-laws and did not tell the in-laws about the new loans and mortgages. The in-laws sued to have the debt held nondischargeable, and the bankruptcy court held that this concealment knowingly and intentionally “destroyed the value of the [in-laws’] mortgage interest.” On appeal, the BAP reverses, holding that (a) failure to disclose to the third party lenders was not a misrepresentation to the in-laws; and (b) failure to disclose to the in-laws was not obtaining money by fraud because the debtors has already obtained the money when the alleged misrepresentations were made. The BAP also finds that the debtors had no intent to deceive the in-laws, but were motivated by the desire to enhance the parties’ investments.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.