725 F.2d 1197 (9th Cir. 1984), 82-4433, In re Madrid

Docket Nº:82-4433.
Citation:725 F.2d 1197
Party Name:In re Judith Lynne MADRID, Debtor. Judith Lynne MADRID, Appellant, v. LAWYERS TITLE INSURANCE CORP., and Donald Turney, Appellees.
Case Date:February 13, 1984
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 1197

725 F.2d 1197 (9th Cir. 1984)

In re Judith Lynne MADRID, Debtor.

Judith Lynne MADRID, Appellant,


LAWYERS TITLE INSURANCE CORP., and Donald Turney, Appellees.

No. 82-4433.

United States Court of Appeals, Ninth Circuit

February 13, 1984

Argued and Submitted Feb. 18, 1983.

Page 1198

Victor Perri, Vernon E. Leverty, Alan R. Smith, Miller & Daar, Reno, Nev., for appellant.

Timothy J. Henderson, Henderson, Nelson & Moschetti, Reno, Nev., for appellees.

Leon L. Vickman, Encino, Cal., for Mortgage Brokers Institute.

Peter G. Clark, Oakland, Cal., for Richard O. Burke.

Noel W. Nellis, Morrison & Foerster, San Francisco, Cal., for American College of Real Estate Lawyers.

Appeal from the United States Bankruptcy Appellate Panel of the Ninth Circuit.

Before GOODWIN, TANG and FARRIS, Circuit Judges.

TANG, Circuit Judge:

The sole question before us is whether the nonjudicial foreclosure sale of appellant's home may be set aside under 11 U.S.C. Sec. 548(a) of the Bankruptcy Code. The bankruptcy court, 10 B.R. 796, set aside the sale, finding that a "transfer" occurred at the foreclosure and that less than reasonably equivalent value was paid to the debtor. The Bankruptcy Appellate Panel, 21 B.R. 424, reversed, holding that reasonably equivalent value is paid as a matter of law when there is a regularly conducted foreclosure sale.

We agree that the foreclosure sale cannot be set aside, but do not base our holding on the question of reasonably equivalent value. We hold that the sale must be upheld because the transfer of the home occurred at the time of perfection of the trust deed, not upon foreclosure.


In September, 1979, Judith Madrid purchased a home near Lake Tahoe, Nevada for $290,000. Madrid made a $125,000 down payment and executed a one-year note, secured by a first deed of trust on the residence, for the balance of $165,000. The $125,000 down payment was financed through Del Mar Commerce Company and secured by a second deed of trust on the same property. Appellee, Lawyers Title Insurance Corporation, is the substituted trustee under the second deed.

Madrid subsequently defaulted on payments due under both deeds. Pursuant to Nevada state law, Nev.Rev.Stat. Secs. 107.080 and 21.130 (1979) and provisions in the second deed of trust, the trustee commenced foreclosure proceedings on the second deed. After proper notice and publication, the property was sold on January 9, 1981, at a nonjudicial foreclosure sale to appellee, Donald Turney. Turney is in the business of buying and selling foreclosure properties. At the time of sale, approximately $176,000 was due on the first deed, and approximately $80,200 was due on the second deed. Turney, the sole bidder, paid the amount due on the second deed plus one dollar. He took the property subject to the first deed, which was also in the process of foreclosure.

On January 16, 1981, seven days after the foreclosure sale, Madrid filed a petition for reorganization under Chapter XI of the Bankruptcy Code. Madrid, as a debtor-in-possession, then brought an action in bankruptcy court to set aside the sale as a fraudulent conveyance under 11 U.S.C. Sec. 548(a)(2)(A) & (B)(i), which states:

(a) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor--

* * *

(2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and

(B)(i) was insolvent on the date that such transfer was made or such obligation

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was incurred, or became insolvent as a result of such transfer or obligation;

* * *

The parties agreed that Madrid met the insolvency requirement of Sec. 548(a)(2)(B)(i). Thus, the question addressed by the courts below was whether there had been a transfer of Madrid's property interest within one year prior to filing of the Chapter XI petition, for which Madrid received less than a reasonably equivalent value.

The bankruptcy court agreed with Madrid that the sale should be set aside as a fraudulent conveyance. The court found, without discussion, that a nonjudicial foreclosure sale constituted a transfer under 11 U.S.C. Sec. 101(41), albeit an involuntary transfer. The bankruptcy court then set aside the sale, concluding that the reasonably equivalent value requirement of Sec. 548(a)(2)(A) had not been met.

The Bankruptcy Appellate Panel reversed the bankruptcy court. The Panel held that the consideration received at a noncollusive and regularly conducted nonjudicial foreclosure sale satisfied the reasonably equivalent value requirement of Sec. 548(a)(2)(A) as a matter of law, and thus the sale could not be set aside. Although the Panel failed to address the transfer issue, it apparently assumed that the sale constituted a transfer under Sec. 548(a).


Since the Bankruptcy Appellate Panel's conclusion rests on a question of law, it is subject to independent review by this court. Lama Co. v. Union Bank, 315 F.2d 750, 752 (9th Cir.1963). While we agree with the Panel that the sale should not be set aside under Sec. 548(a)(2)(A), we base our reasoning on different legal principles.

We conclude that the foreclosure sale was not a transfer under Sec. 548(a), and do not decide whether the amount paid at foreclosure was a reasonably equivalent value. For reasons that follow, we hold that the transfer of Madrid's property interest under Sec. 548(a)(2)(A) occurred at the time the second deed of trust was perfected under Nevada law. That transfer was carried out more than one year prior to filing of the bankruptcy petition. Thus, the transfer was not voidable as a Sec. 548(a)(2)(A) fraudulent conveyance.

Arguments of the Parties

Madrid's Sec. 548 petition seeks to avoid and set aside the allegedly fraudulent transfer of her equity interest in the residence. Yet before Madrid may avail herself of the relief provided under Sec. 548(a), she must demonstrate that there has been a transfer of the residence within one year prior to filing of the bankruptcy petition. She alleges that such a transfer occurred at the nonjudicial foreclosure sale. Appellees, however, take the position that the only transfer that has taken...

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