Legal and Social Trends Help Create a New Industry

by Steven D. Bearak, Esq.
and Lara H. Ragunas

From the fall of the real estate market to an increase in bank failures, a variety of forces have helped create the asset search and information services industry. Spurring the growth of this distinct new industry are various legal and social trends, which include an influx of attorneys, increased competition among law firms, a high rate of divorce, and today's highly litigious society.

The asset search and information services industry is an offshoot of private investigation. However, the services provided by asset search and information firms increasingly bear only a limited resemblance to the traditional notion of private investigations. Several trends have created and supported the separation of these two fields.

Where private investigators are associated with surveillance and pretext phone calls, asset search and information firms specialize in locating assets and researching and retrieving public documents -activities that rarely involve personal contact with the subject. Asset search firms use a variety of resources including on-line services, databases, public records, private information sources and private investigators. In locating assets, firms require a multitude of resources and an understanding of the many ways assets can be uncovered.

Lesson One: Hiding Real Estate

Individuals have several methods at their disposal for concealing real estate. The majority of real estate trusts are created for legitimate reasons. However, some individuals use these trusts to hide real estate. Individuals looking to conceal assets can use real estate trusts in a variety of ways:

• Individuals can place property in trusts while acting as trustees of those trusts;
• Individuals can place property in real estate trust with their spouses, children or friends as trustees; or
• Individuals can have a beneficial interest in trusts without acting as trustees.

In certain respects, real estate trusts are not a particularly good method of hiding real estate. Records of deeds, mortgages, declarations of trust and other real estate documents are maintained at registries of deeds in towns or counties throughout the United States. At more than half of these registries, records are cross-referenced from the real estate trust names to the names of the individual trustees. In other words, a check of the records at most registries of deeds will generally reveal property owned by a subject as trustee just as such a search would reveal property owned by the subject individually (or jointly with a wife, partner, etc.). The same is true of real estate ownership records at town assessors' offices as most assessors' offices cross-reference information. On the other hand, on-line sources of real estate are not likely to have real estate information cross-referenced from trusts to trustee (individual) names. Also, the on-line services typically have a limited history of transactions, collecting and maintaining records for a limited period of time.

A second method of concealing assets using real estate trusts involves "trust" on the part of the individual concealing the assets. An individual can finance the purchase of property by a real estate trust with a spouse, child or friend as trustee. The individual would then have to trust the other party or parties to funnel money back in his or her direction. Since the individual would not be a trustee in the trust, the trust and trust property would not be cross-referenced to his or her name at the registry of deeds. In terms of asset searches such trusts and trust property would be located by searching under the spouse's, children or friends' names. However, proving that the assets belong to the individual would be difficult at best.

Real estate trusts offer one very effective method for hiding assets, at least in certain states. An individual can hold a beneficial interest in a trust but not be a trustee. The trust can be set up so that one individual holds 100 percent of the interest in the trust. If the individual is not a trustee, the trust and trust property will not be cross-referenced to that individual's name. Rarely will a registry of deeds cross-reference beneficial interests to individual names. Furthermore, in many states, trusts are not required to reveal the names of individuals holding beneficial interests. The trust documents may be recorded in the registry of deeds with no list of beneficial interests. In this way, tying individuals to property can become very difficult.

Limited partnerships offer essentially the same opportunities for concealing real estate assets as real estate trusts. Also, as with trusts, many registries of deeds cross-reference information to individual partners' names when those partners sign the real estate documents.

In hiding assets, an individual may deed over his property to his spouse, child or other friendly party. For most asset search firms, fraudulent conveyance of real estate is easier to track than cash transactions. Real estate transactions involving an individual as buyer or seller can be identified using on-line services or records at registries of deeds. A fraudulent conveyance of real estate might be picked up as a transaction involving the subject as seller, for nominal consideration, and the subject's wife as buyer. The date of the transfer might also be suspiciously close to the date of a loan default, bankruptcy filing or auto accident. In one case, a subject and his wife conveyed their home to the wife individually in a deed recorded one day after a drunk driving accident in which the subject killed another person.

Lesson Two: Hiding Personal Property

Individuals have several options if they want to hide personal property such as automobiles, boats, aircraft, jewelry or art. While state and federal agencies keep records of auto, boat and aircraft registrations, the amount of information contained in those records varies significantly. For example, state records may enable asset search firms to identify the make, model and year of autos, boats and other vehicles in a subject's name. In some states, records may reveal only that a subject has a driver's license. Furthermore, agencies do not maintain accessible records of transactions (changes in ownership) involving autos, boats or aircraft. Records are limited to property presently registered to a specific subject. In this way, tracking and proving fraudulent conveyance of personal property can prove more difficult than for real estate.

Frequently, asset searches discover personal property of significant value. In one case, an individual proved to be a collector of extremely valuable antique automobiles. In this situation, the vehicles were registered in the subject's name.

In yet another case, an asset search identified an individual as owning two French impressionist paintings by the world famous artist Renoir. The asset search revealed the paintings through an identification of Uniform Commercial Code financing statements in the subject's name. On one financing statement, the paintings had been listed as collateral.

Consumers of Asset Search Services

Asset search and information firms are among a select group that benefits from a litigious society. Litigation attorneys retain asset search firms before accepting a case, while deciding whether to file suit, during discovery and after winning a judgment.

As a pre-litigation tool, attorneys use asset searches to decide if a case is worth pursuing. While the case is pending, asset searches help attorneys decide on strategies, specifically on when to settle the law suit and for how much. Post-judgment, attorneys use asset searches to locate assets to satisfy claims.

In addition to litigation attorneys, lawyers concentrating in workout, bankruptcy, domestic relations, personal injury, environmental law and collections have added asset searches to their lists of available tools.

The high divorce rate has also helped build the asset search industry as divorce attorneys often use search services. Particularly in divorce cases, asset searches can have a positive impact by helping to ensure equitable settlements and providing a new resource to locate "dead-beat dads (and moms)" and their assets.

Interestingly enough, the growing social trend toward self-help positively affects asset search firms. More frequently, individuals are soliciting the services of asset search firms without the assistance of their attorneys. These individuals approach asset search firms directly for a variety of reasons, including in response to feelings that attorneys have not taken enough aggressive action. Often, the person wants as much control over the discovery of assets as possible.

Other trends have provided business for asset search firms as well. Most notably, the dramatic increase in business and personal bankruptcies has resulted in record real estate, commercial and consumer loan and credit card defaults.

Many government agencies, banking institutions, asset management firms, as well as the law firms retained by those organizations, are important consumers of asset search and information services. Asset search firms are retained to verify financial statements and discover hidden assets of the individuals and companies making up defaulted debtor lists. While many of these people and organizations have suffered serious financial hardship, a significant proportion have sheltered or otherwise hidden their assets from loan workout people. In cases where account officers believe the debtor is dealing in good faith, asset search firms are retained to make only the most basic of checks. In cases where the defaulted debtor is suspected of hiding or not disclosing assets, on the other hand, some officers choose to authorize more thorough searches.

The expanding ranks of attorneys are investing in a full range of legal support services, including private investigation and asset search firms. These services have blossomed to meet the varied needs of the legal community. They enable law firms of all sizes to subcontract those tasks not requiring an attorney's personal attention. As specialists, these firms are able to more cost effectively complete critical projects accurately and on time. Consequently, law firms are integrating these services into their practices in order to increase profitability and more zealously represent their clients.

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