Residential, commercial, and investment property assets often represent the most significant assets a person possesses — and when disputes arise, they can quickly become contentious and complex. In situations where a property was acquired through fraud, mistake, breach of fiduciary duty, or other misconduct, a constructive trust can be a powerful remedy to correct the wrongful action. This court-imposed solution can prevent the wrongdoer from unfairly benefiting from retaining a property they are not legally entitled to and ensure it is transferred back to the rightful owner.
What is a Constructive Trust?
A constructive trust is not to be confused with an actual trust. Rather, a constructive trust is an equitable remedy a court may impose to prevent unjust enrichment. It can be used in property disputes if the party holding the property wrongfully acquired it or would unfairly benefit from it. The party holding the property is declared a “constructive trustee” and obligated to hold the property for the benefit of the rightful owner.
A constructive trust can be a temporary measure until the defendant transfers the property back to the rightful owner. Alternatively, it can be an ongoing trust that allows the true owner to benefit from the property if it cannot be easily transferred back.
When is a Constructive Trust Imposed in a Property Dispute?
A court can impose constructive trusts in a number of situations. They are typically used in cases where the party holding the property acquired it by wrongdoing. Examples of scenarios where constructive trust may be imposed in connection with residential or commercial property can include the following:
- A family member who refuses to share inherited property as promised.
- A buyer purchases commercial property with funds they knew were obtained fraudulently.
- A business partner who breaches their fiduciary duty and uses the property for their own benefit.
- A cohabitating partner who contributed to the purchase of a property, but the other holds legal title.
- Someone invests significant funds into the improvement of a property based on the promise of future ownership.
In the above situations, a constructive trust can help ensure ownership reflects what is equitable, regardless of what may be written on paper.
How Do Courts Determine Whether to Impose a Constructive Trust?
When determining whether a constructive trust is an appropriate remedy in a property dispute, New York courts evaluate whether unjust enrichment has occurred. Specifically, four elements must be proven before a constructive trust can be imposed:
- A confidential or fiduciary relationship existed between the parties.
- There was a promise or understanding between the parties.
- Property was transferred in reliance on that promise.
- The defendant would be unjustly enriched by retaining the property that by law or equity should belong to the plaintiff.
Notably, a constructive trust is only used in specific circumstances where other legal remedies are inadequate. The party seeking this remedy must establish that unjust enrichment has occurred. If it can be shown that the defendant was unjustly enriched at the expense of the rightful owner, a constructive trust may be imposed — fraud does not need to have occurred.
Contact a Long Island Real Estate Attorney
Property disputes on Long Island can be complicated, and it’s essential to have an attorney by your side to protect your interests. At Barnes & Barnes, P.C., we offer high-quality legal services and trusted representation for a wide range of commercial and residential property disputes and strive to achieve the best possible outcome in every case. Contact us at (516) 673-0674 to schedule a consultation.
