5 F.3d 417 (9th Cir. 1993), 91-16518, In re Weisman

Docket Nº:91-16518, 91-16600.
Citation:5 F.3d 417
Party Name:In re Marc A. WEISMAN and, Sheila J. Weisman, Debtors. Jerome E. ROBERTSON, Trustee, Plaintiff-Appellee-Cross-Appellant, v. Marc PETERS, Defendant-Appellant-Cross-Appellee.
Case Date:September 21, 1993
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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5 F.3d 417 (9th Cir. 1993)

In re Marc A. WEISMAN and, Sheila J. Weisman, Debtors.

Jerome E. ROBERTSON, Trustee, Plaintiff-Appellee-Cross-Appellant,

v.

Marc PETERS, Defendant-Appellant-Cross-Appellee.

Nos. 91-16518, 91-16600.

United States Court of Appeals, Ninth Circuit

September 21, 1993

Argued and Submitted Feb. 4, 1993.

Page 418

Esther Z. Hirsh, Long & Levit, San Francisco, CA, for defendant-appellant-cross-appellee.

Cathleen Cooper Moran (argued) and Michelle K. Rubin (on briefs), Mountain View, CA, for plaintiff-appellee-cross-appellant.

Appeal from the United States District Court for the Northern District of California, Eugene F. Lynch, District Judge, Presiding.

Before: FLETCHER, REINHARDT, and NOONAN, Circuit Judges.

REINHARDT, Circuit Judge:

We are faced with the question whether under California law a husband's occupation of his family residence with his second wife

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can create a duty in a bona fide purchaser for value or a bankruptcy trustee to inquire as to whether his former wife still retains the ownership interest in that property that appears of record. Guided by reality, our answer is yes.

I. Factual and Procedural Background 1

Debtor Sheila Weisman (formerly Sheila Peters) married defendant Marc Peters in 1963. They bought a house, which is the subject of the instant dispute, in Campbell, California in 1967. The couple lived in the Campbell residence until March 1985, when Sheila Peters moved out. The couple's marriage was dissolved that fall, but the judgment of dissolution was not recorded. Pursuant to their property settlement, Marc Peters had the right to purchase his former wife's interest in the house they had previously shared. He did so by refinancing and using the loan as the purchase price. However, the lender required Sheila Weisman, who had married debtor Marc Weisman in November 1985, to remain on the title to the property.

As a result of the refinancing transaction, title to the Campbell residence was transferred from Marc Peters and Sheila Peters, as community property, to Marc Peters and Sheila Weisman (a married woman), as tenants in common. 2 The deed reflecting the transfer was dated June 23, 1986, and was recorded July 2, 1986. Marc Weisman then executed a quit claim deed in favor of Sheila Weisman on June 24, 1986, which was also recorded on July 2, 1986. After receiving payment from Marc Peters for her interest in their former home, Sheila Weisman executed a quit claim deed in favor of him on June 25, 1986. The deed was delivered on August 27, 1986, but was not recorded until December 8, 1988. Marc Peters married Nianne Neergaard in August 1986 and the couple has lived in the Campbell residence since that time.

In August 1988, Sheila Weisman and her second husband, Marc Weisman, filed a voluntary bankruptcy petition under Chapter 7 of the Bankruptcy Code (liquidation). A trustee, plaintiff Jerome Robertson, was appointed. After learning that Sheila Weisman was a record title holder to the Campbell residence, the trustee filed a complaint against Marc Peters for authorization to sell that property, as permitted by the Bankruptcy Code. 3 After hearing oral argument, the bankruptcy court found for defendant Peters. The district court reversed the bankruptcy judge's finding as clearly erroneous and entered judgment for the trustee. Peters appealed and the trustee cross-appealed to this court. 4 Because both the bankruptcy court and district court decisions were final, we have jurisdiction under 28 U.S.C. section 158(d). We independently review the bankruptcy court's decision and do not give deference to the district court's determinations. Briggs v. Kent (In Re Professional Investment Properties of Am.), 955 F.2d 623, 626 (9th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 63, 121 L.Ed.2d 31 (1992). We apply a clearly erroneous standard to the bankruptcy court's findings of fact and review its conclusions of law de novo. Id.

II. Analysis

The Bankruptcy Code, 11 U.S.C. section 544(a)(3), 5 gives a bankruptcy trustee

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"strong arm powers" to avoid transfers of real property of the debtor that would be voidable under state law by a bona fide purchaser (BFP) of the property from the debtor. Professional Investment, 955 F.2d at 627; Tleel v. Chbat (In Re Tleel), 876 F.2d 769, 770 (9th Cir.1989); Probasco v. Eads (In Re Probasco), 839 F.2d 1352, 1354 (9th Cir.1988). While whether a trustee qualifies under section 544(a)(3) is a question of federal law, state law determines whether the trustee's status as a BFP will defeat the rights of the person against whom the trustee seeks to assert his powers. 4 Collier on Bankruptcy, p 544.02, p. 544-8 to 11 (Lawrence P. King ed., 15th ed. 1992); Tleel, 876 F.2d at 772; Gurs v. Walsh (In Re Gurs), 27 B.R. 163, 165 (Bankr. 9th Cir.1983). 6 Here, California law applies and will determine whether the trustee can set aside Sheila Weisman's (hereinafter "Weisman") unrecorded transfer of all of her interests in the house to Marc Peters (hereinafter "Peters").

California is a race-notice jurisdiction and requires every conveyance...

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