542 F.3d 684 (9th Cir. 2008), 06-15411, In re Tippett

Docket Nº:06-15411.
Citation:542 F.3d 684
Party Name:In the Matter of Craig L. TIPPETT; Christine L. Tippett, Debtors, Michael F. Burkart, Chapter 7 Trustee, Appellant, v. Seitu O. Coleman; Irwin Mortgage Company, Appellees.
Case Date:September 04, 2008
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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542 F.3d 684 (9th Cir. 2008)

In the Matter of Craig L. TIPPETT; Christine L. Tippett, Debtors,

Michael F. Burkart, Chapter 7 Trustee, Appellant,

v.

Seitu O. Coleman; Irwin Mortgage Company, Appellees.

No. 06-15411.

United States Court of Appeals, Ninth Circuit

September 4, 2008

Argued and Submitted Dec. 5, 2007.

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[Copyrighted Material Omitted]

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Gregory J. Hughes, Hughes & Pritchard, LLP, Roseville, CA, for appellant.

Mary E. Olden, McDonough, Holland & Allen PC, Sacramento, CA, for appellees.

James A. Tiemstra, Oakland, CA, for amicus curiae.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel; Brandt, Marlar, and Smith, Bankruptcy Judges, Presiding. BAP No. EC-05-01087-BMaS.

Before: B. FLETCHER, WILLIAM C. CANBY, JR., and JOHNNIE B. RAWLINSON, Circuit Judges.

OPINION

CANBY, Circuit Judge:

After filing a joint Chapter 7 petition in bankruptcy and without authorization, Craig L. Tippett and Christine L. Tippett retained a realtor and sold their homestead in Sacramento County, California to Seitu O. Coleman. The Trustee in bankruptcy had not recorded the Tippetts' Chapter 7 petition in the office of the Sacramento County Recorder, and the Tippetts did not reveal their bankruptcy to their realtor or to Coleman. It is undisputed that Coleman is a bona fide purchaser under California law. The Trustee filed an adversary proceeding seeking, inter alia, to quiet title to the residence in the bankruptcy estate. The bankruptcy court ruled in favor of the Trustee. On appeal, the Bankruptcy Appellate Panel (“BAP" ) reversed and entered judgment in favor of Coleman and his purchase-money lenders. We now hold that the Bankruptcy Code does not preempt California's bona fide purchaser statute as it applies to this transaction. In addition, we adhere to the established proposition that the automatic stay triggered by a debtor's bankruptcy petition does not void transfers of estate property initiated by the debtor. We therefore affirm the BAP's decision in favor

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of the bona fide purchaser and his lenders.

BACKGROUND

In May 2001, the Tippetts filed a joint Chapter 7 petition. Appellant Michael Burkart was appointed trustee. In their petition, the Tippetts listed their residence as having a market value of $140,000 and two liens against it totaling $134,958. After amendment, the Tippetts claimed an exemption in the residence of $1,530. No one recorded the Tippetts' Chapter 7 petition or any notice of bankruptcy with the office of the Sacramento County Recorder.

The Trustee did not abandon the bankruptcy estate's interest in the residence, and the Tippetts continued to occupy the premises until the purported sale to Coleman. In November 2002, the Tippetts, without authorization and without disclosing their bankruptcy, listed the residence for sale through a real estate broker for $230,000. At about the same time, and without knowing of these events, the Trustee wrote to the Tippetts' attorney requesting their cooperation in marketing the residence because he believed that there might be equity available for unsecured creditors because of the general appreciation in value of real estate in the area. He sent a copy of his letter to the Tippetts. There is nothing in the record evidencing any further communication between the Tippetts and the Trustee.

In April 2003, Coleman, whom all parties agree is a bona fide purchaser without notice of the bankruptcy proceedings,1 bought the residence for $225,000. Coleman signed a purchase money note in favor of Irwin Mortgage Corporation for $221,865, secured by a first deed of trust on the residence. The deed of trust was duly recorded. In addition, Coleman signed a second purchase money note in favor of California Rural Home Mortgage Finance Authority in the amount of $6,900. This deed of trust was also duly recorded. After $130,557.90 in pre-petition encumbrances was paid from the escrow account, the Tippetts received net proceeds of $76,582.76, exceeding both their claimed homestead exemption and any other exemption available to them.

The Trustee filed an adversary proceeding against the Tippetts, Coleman, and the lenders, seeking to recover the sale proceeds under 11 U.S.C. § 542, avoid the lenders' liens, and quiet title. The Trustee also sought to revoke the Tippetts' discharge for knowingly and fraudulently selling an asset of the estate and retaining the net proceeds under 11 U.S.C. § 727(d)(2).

The bankruptcy court bifurcated the quiet title and discharge revocation proceedings. After trial of the quiet title action on stipulated facts, the bankruptcy court held that the Tippetts' grant deed and the lenders' liens were void ab initio as violations of the automatic stay provided by 11 U.S.C. § 362. The court rejected other asserted alternatives and defenses and quieted title in the Trustee. The bankruptcy court, however, granted the lenders an equitable lien against the residence in the amount of $130,557.90 to be paid out of ultimate sale proceeds.

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On appeal from the bankruptcy court's final judgment, the BAP held that the Tippetts' unauthorized transfer of the Residence to Coleman did not violate the automatic stay. The transfer therefore was not utterly void. The BAP pointed out that a Trustee can avoid unauthorized transfers by debtors under 11 U.S.C. § 549(a), but that this provision was of no use to the Trustee here because it includes a defense for bona fide purchasers. See § 549(c). Accordingly, the BAP reversed the bankruptcy court's judgment and...

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