Greg and Lisa bought a home in Malibu from Charles, allegedly with money earned in an illegal drug transaction with Charles, a known drug-dealer and business associate of Greg.
The federal Drug Enforcement Agency approached a federal magistrate, established probable cause the house was bought with drug proceeds and obtained a writ of entry and a warrant.
A few days later, DEA agents seized the house. Inside, they found $99,830 in musty, brittle U.S. currency lying on a bedroom floor.
Greg and Lisa filed a claim in the forfeiture proceeding, alleging the seizure violated due process under the Fifth Amendment of the U.S. Constitution.
They argued the U.S. Supreme Court has ruled the government must give a property owner a preseizure notice and opportunity to be heard in a court proceeding before the seizure of real estate allegedly obtained with proceeds of illegal drug transactions.
Can Greg and Lisa’s home be seized by the government before giving notice and opportunity for a hearing?
The judge said no.
The U.S. Supreme Court has ruled a home or other real estate allegedly acquired with proceeds of an illegal drug transaction cannot constitutionally be seized by the government without notice to the owner and an opportunity to be heard in court, the judge explained.
In this case, the government not only failed to notify the owners before the seizure but seized $99,830 in cash found in the home, the judge emphasized. This seized monetary evidence cannot be introduced at the trial, he added.
Greg and Lisa are entitled to return of their home, as well as the $99,830 seized, the judge ruled. They are entitled to a new trial to determine if the federal government has grounds to seize their home by proving it was purchased with funds from illegal drug transactions, the judge concluded.
Based on the 1995 U.S. Court of Appeals decision in U.S. vs. Real Property at 20832 Big Rock Drive, Malibu, Calif., 51 Fed.3d 1402.
Commission upheld
Vatche was president, sole director and sole shareholder of Presidential Corp., which paid $76,886.81 as part of the down payment on a personal residence for Vatche.
Realtor Richard received a $4,499.87 sales commission for the home sale. Fourteen days later, Presidential Corp. entered involuntary Chapter 7 bankruptcy.
The bankruptcy trustee brought a lawsuit against agent Richard to recover the sales commission as an alleged fraudulent transfer that did not benefit the debtor, Presidential Corp.
Richard argued that he performed his real estate services and is entitled to his full sales commission. He testified he was unaware of the source of funds.
But the bankruptcy trustee argued purchase of the home for Vatche did not benefit the bankrupt corporation, so Richard must return his sales commission.
Should Richard be ordered to return his $4,499.87 sales commission?
The judge said no.
It was Vatche, not Richard, who used corporate funds to pay for the personal residence, the judge began. Since Vatche was the initial transferee of corporate funds, Richard is insulated from liability to return the sales commission, he explained.
A real estate agent should not be required to investigate the source of funds for a property purchase, any more than a person receiving payment by check is required to investigate where the funds originated, the judge emphasized. Therefore, Richard is not required to return his real estate sales commission.
Based on the 1995 U.S. Bankruptcy Appellate Panel decision In Re Presidential Corp., 180 B.R. 233.
