Debt recharacterization case

Stout was engaged by outside counsel to analyze the characteristics of an advance of funds between two parties engaged in a joint venture to develop a property, and provide an assessment of whether the instrument exhibited characteristics of debt or equity. The funding advance was recorded as a mortgage by the local County Clerk, and subsequently assigned to another individual. When then assignee sought to enforce his rights under the mortgage, the borrower claimed that the advance was an equity contribution rather than debt. Stout assessed the characteristics of the instrument utilizing a multi-factor framework considered and relied upon by various courts in bankruptcies, tax controversies, and commercial disputes. This matter was resolved before a Stout professional was asked to provide expert witness testimony.

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